OUSD(AT&L) Acquisition Resources & Analysis (ARA) Property and Equipment Policy DoD Property Accountability Update Mrs. Amber Propert, CDFM, CPPS Office of the Under Secretary of Defense (Acquisition, Technology, and Logistics)/Acquisition Resources & Analysis, Property & Equipment Policy Office June 24, 2014 Agenda Valuation of Department of Defense Assets Existence & Completeness of Mission Critical Assets Government Furnished Property Material Weakness Correction Accountable Property System of Record Sustainment General Property, Plant and Equipment (GPP&E) as of FY 2013 (Net Book Value with dollars shown in Millions) Assets Under Capital Lease $194 0% Other $1,034 0% Land $10,781 2% CIP $46,636 7% Buildings, Structures, & Facilities $141,786 22% General Equipment $36,706 6% Leasehold Improvements $236 0% Software $2,986 1% Military Equipment $399,253 62% Source: FY 2013 DoD Agency Financial Report (AFR) / DoD Performance and Accountability Report (PAR), page 97 68% of DoD’s GPP&E is General and Military Equipment 3 ME & GE Weakness & History 9/30/2006 Weakness: Process and controls to account for the quantity and value of military equipment are not effective. • Baseline ME values established • CAMS-ME utilized for reporting and assertions 8/31/2009 • Comptroller deemphasized MEV outlining audit readiness priorities 9/30/2009 • CAMS-ME shut down • Components instructed to develop own reporting process 5/30/2011 Bottom Line – Valuation is still required per the Accounting Standards and is a significant risk to DoD Audit Readiness Success 4 • BCA published. FASAB has not been approached to change standard to date Today • Nov 2013 FIAR Plan Status Report states valuation to be performed. Elimination of ME, Capitalization Threshold for GPP&E Joint Signed Memo 09/20/14 Combine ME with GE • ME Definition Rescinded • ME will be reported as “General Equipment” beginning Fiscal Year 2014 Increase Cap Threshold for GPP&E • Raise from $100,000 to $1 million for Air Force and Navy General Fund assets • Raise from $100,000 to $250,000 for remaining DoD for all IUS & other GE for General and Working Capital Funds • Changes to be implemented prospectively starting 10/1/2013 Increase Cap Threshold for Real Property • From $20,000 to $250,000 for all new Real Property assets and modifications • Changes to be implemented prospectively starting 10/1/2013 Conduct Valuation for new GPP&E Conduct Valuation for Legacy Assets 5 • • • • For assets placed into Service 10/1/2013 & after Follow FIAR guidance for adequate supporting documentation Value assets using expenditure data if processes and systems support OK to estimate asset costs if systems and processes can’t support accumulating expenditure data by asset • First priority is assets with a Net Book Value remaining by September 30, 2017 • Validate values and ensure adequate supporting documentation (as prescribe by FIAR guidance) • Must be completed by 09/30/2017 • Secondary priority is fully depreciated assets. Validate value and supporting documentation for fully depreciated assets Valuation and Audit Financial Improvement and Audit Readiness (FIAR) Efforts – Valuation is scheduled as Wave 4 of 5 total audit readiness phases – Wave 4 Expectations • Justify how the acquisition value was determined • Tied to Existence & Completeness (E&C) and property accountability – When: Audit Ready Deadline mandated by NDAA FY10 of September 30, 2017 Existence and Completeness Mission Critical Assets E&C is Wave 3 of the 5 FIAR phases DoD Property must be property recorded on accountable records Includes all asset types – General Property, Plant, and Equipment • Real Property • Equipment and other Personal Property – Inventory – Operating materials and supplies Every asset must have an DoD accountable property record and vice versa FIAR Guidance – Wave 3 Existence & Completeness In order to assert to Audit Readiness, Component management must satisfy financial statement assertions: Existence • Reported assets actually exist at a given date Completeness • All assets are properly recorded in the Component’s Accountable Property System of Record (APSR) Rights and Obligations • Reporting entity claims it has the rights to and “owns” the equipment, and has documentation to support its “rights” Presentation and Disclosure • Assets are consistently categorized, summarized, and reported from period to period in accordance with DoD guidance and Federal financial reporting standards 8 Documentation for Assertion – Existence Management Asserts: Auditors Examine: Reported assets exist Complete Asset Listing from APSR Documentation proving asset existence Process documentation detailing how periodic verification of asset listing is performed APSR Asset Listing reconciles with financial statements Documentation regarding the actual performance of inventories, including wall-to-wall efforts Physically Verified 9 Documentation for Assertion – Completeness Management Asserts: All assets meeting definition of capital equipment have been recorded and reported Recorded in APSR Auditors Examine: Reconciliation of Financial Statements to APSR Asset Listings Program Offices activity and Procurement Budgets Review “floor to book” samples from Physical Inventories Receiving and acceptance documentation 10 Documentation for Assertion – Rights & Obligations Management Asserts: Auditors Examine: DD250 Notional example Management has the rights to and “owns” the equipment and has documentation supporting its assertion Receiving and acceptance documentation (e.g., DD250, DD3161, DD1149) Contract terms and GFP listings in contracts Receiving Report Notional example Preponderance of Use documentation 11 E&C Status Update As of November 2013 FIAR Plan Status Report, 53% of mission critical assets (ME, GE, OM&S, and inventory) are either under audit, have been validated as audit ready, or have asserted audit readiness P&EP collaborates with Components by monitoring and providing support with FIPs and Assertion Packages USD (Comptroller) established a completion date, 30 June 2016, for E&C assertion; Department is well positioned to meet assertion date Component Quick Win E&C Accomplishments Total Equipment: $414.1B (NBV) NBV in Billions Total Asserted 63% Remaining 37% Assertion Date Assessable Unit Assertion Made Total Equipment Air Force $84,155,176,000 $95,827,947,000 87.82% 10/31/2010 Army $0 $103,447,710,000 0% 12/31/2013 Navy $176,918,479,722 $199,990,133,000 $1,098,073,509 $0 - $640,972,302 $0 - $262,812,701,533 $414,088,500,000 SOCOM MDA Total Military Equip 12 % of NBV 88.46% 63.47% Note 1 – Army has recently submitted their 12/31/13 assertion for GE in PBUSE. 9/30/2010 E&C Audit Readiness Deadline set for asserting to audit readiness for E&C mission critical assets – June 30, 2016 Earlier than the full Audit Readiness deadline!!! Government Furnished Property Government Furnished Property (GFP) is tied to audit readiness, financial reporting, and property accountability Numerous audits have shown DoD weaknesses in dealing with GFP OSD(AT&L) declared a material weakness over GFP accountability in 2011 Bottom Line Up Front Not enough progress to meet deadlines, especially 2017 Need stronger senior level engagement by the Services’ leadership Dual Track problem: – Current/future business process updates – Legacy clean up of property records Many issues over many domains need coordinated support by all leadership (blame frequently falls on logistics; problems begin in acquisition and flow through contracting) Government Furnished Property (GFP) Definition: (FAR 45.101 Definitions) • Government-furnished property means property in the possession of, or directly acquired by, the Government and subsequently furnished to the contractor for performance of a contract. Government-furnished property includes, but is not limited to, spares and property furnished for repair, maintenance, overhaul, or modification. • Government-furnished property also includes contractoracquired property (CAP) if the contractor-acquired property is a deliverable under a cost contract when accepted by the Government for continued use under the contract. GFP consists of both: Equipment (expectation is to receive back intact) Material (expectation is these items consumed or embedded) GFP Data Points GFP has been significantly under reported Estimates of GFP population is UNKNOWN DCMA administers $160B worth of contracts containing the property clause, no confidence this amount equals an amount in any Service financial statement. Service administered contracts (e.g. Naval shipbuilding contracts) with GFP have no estimated dollar amount. IUID Registry GFP Study estimates $41B worth of government property in the possession of contractors. Completeness of IUID Registry data UNKNOWN Air Force Audit estimated $22B unaccounted as of January 2010. Approx. $2B added since 2012. OM&S Material dollar values are current UNKNOWN Components have not established GFP baselines (“we don’t know what we don’t know”) 17 History Until 2006, FAR stated contractor records would be official records of property – Goes against financial principles FAR 2007 update corrected language DoDI 5000.64 (2006) added supporting language requiring property records FIAR gains momentum in 2010; deadlines set by Congress for 2017 Department-wide Material Weakness declared in FY2011 Statement of Assurance GFP – Get Well Plan Immediate (1) Stop the bleeding. (2) No GFP should be furnished without PCO first meeting PGI 245.103-70 (Cost Benefit Analysis) Short Term Intermediate (1) Identify contracts ending within one year (1) Identify contracts going beyond one year (2) Plan for property disposal; contractors use PCARSS for excess property (2) Ensure GFE reported to IUID registry (3) Use fillable PDFs for GFE listing (4) Modify contracts as needed to add GFE listing Long Term (1) Update local policy and procedures; sustainment & compliance OSD Corrective Action Plan/Methodology We asked for: We explained: • Services to include GFP in the Financial Improvement Plans • Participation in the quarterly GFP working group • Standard methods of data requests/retrieval from contractors • Contracts to be modified to include mandatory property clauses • GFP lists to be added in contracts where such lists were deficient (serves as substantiating documentation for rights/ obligations on older assets) • Metrics • How to execute • Use of audits performed on contractors • Stratifying by risk, contract age, likelihood of property existence • Expectations of metrics and reporting of progress • How to establish and report metrics on methodology progress Specific milestone status on following slides Milestones – 3Q 2011 through 3Q 2012 OSD provides Methodology (3Q11) • Completed January, 2011 DoD 4140.1-R update (1Q12) • Pushed back several times by L&MR and WHS. Published 1Q14 GFP Working Group meetings (1Q12) • Consistently happening every quarter DoD 4161.02 update (2Q12) • Published in April, 2012 Metrics for reporting developed (2Q12) • Provided in 2012. • Services now complying 2014. Components begin existence and completeness testing (3Q12) • Discovery phase underway; not all are GFP focused DFARS cases on GFP to finalized and published (3Q12) • Final clause update published August, 2012 Milestones – 4Q 2012 through 4Q 2013 GFP electronic transactions (4Q12) • WAWF property transfers (Delayed) • Industry asked for more time; clause says 2014 • Services slow in adopting; USMC leading implementation, Air Force close behind • Contract systems provide data to WAWF (Partial) • Systems compliant with Procurement Data Standard are 100%; All others need work. • DCMA transactions through eTools (Accomplished) OSD to provide gap analysis to DCMO (4Q12) • Gaps have been identified. Awaiting A2R updates for implementation DAU to update Industrial Property Courses (1Q13) • Completed 2Q12; new IND 105 and 205 material OSD to review metrics, assertion packages, etc. for Component progress (3Q13) • In progress. Delayed to 2016 per Comptroller/FIAR direction OSD to publish GFP CONOPs (4Q13) • Completed with update to DoDI 4161.02 (2Q12). Referenced as the GFP Manual in the Instruction. Issues Comptroller functions have high insistence of 100% accuracy of ALL information in property systems. Impedes path forward by “waiting for perfection” Components still insist on going to contractor facilities to perform inventories. Highly disruptive: costly in both time and money, effects contract performance for job #1 Contractor site visits meant to cover all Government interests; too difficult to coordinate among Components. Overall is ineffective and disruptive GFP reported data in IUID Registry is not complete enough for use by Components; encouraging ‘short cuts’ Contracting officers (1102 series) are inconsistent in applying all mandatory clauses per FAR, DFARS Level of “trust” of work performed in auditing contractors is lacking; contrary to OSD methodology Non-DCMA administered contracts have far different levels of effort and management; often lacking in compliance with DoDI 4161.02 Manual information due to competing guidance from parent Service Size of administration workforce impedes efforts (too few 1103) Current Efforts Training is being developed regarding new clauses, GFP management, personnel, etc. – P&EP conducting Topical Webinars related to GFP • May 2014 – Statisical Sampling, Government Property Clause, • June 2014 – FAR vs DoD Regulation & Instruction FAQ entries are being written and maintained on the web for access to both DoD and Industry WAWF and DPAS have developed functionality to electronically manage GFP information; generally Components slow to adopt. OSD Senior Leadership Involved! Components are briefing the GFP Material Weakness Senior Official in Charge and the Director, DPAP on: – – – – What is Component’s plan for GFP accountability? What activities have been accomplished? What are near term milestones? Is Component on track to make these milestones and 2017 audit readiness deadline? – What are any issues/obstacles standing in the way of successful completion? – What additional OSD guidance/assistance is needed? – How are you measuring progress/current status (metrics)? GFP and the APSR DoD property must have an accountable record for fiduciary and managerial purposes Accountable records are kept in an Accountable Property System of Record (APSR) Accountable Property System of Record What is an APSR? – An Accountable Property System of Record (APSR) is defined in detail as: the business system/application used to account for and maintain accountability of government property. This system/application represents the authoritative official records for the government entity regarding the property it is responsible for and reflects the appropriate updates to the property as a result of life cycle transactions. To ensure data integrity, there must be one and only one system of record for a given piece of property. The APSR is a subsidiary ledger to the financial systems general ledger and represents the history of all transactions impacting the property and its value. What does an APSR do? An APSR holds the most current record of an asset’s status. – This can include the condition, who has it, where it is, and how much it cost. – Many systems hold information about property, so a conscious decision must be made about which system or record is primary, i.e. accountable. – The accountable record information must then be exported into a financial system to complete the financial reporting process. – Beware: if there is more than one system reporting accountable information about a piece of property you may get double or even triple reporting of that information. An APSR can be specific to the type of property but does not have to be. It is the data maintained that makes a difference. – An APSR can maintain data for just equipment or it can maintain data for equipment, inventory, and real property. – The final output is data that will be used in financial reporting. – There can be many systems, and many property systems, but only one set of accountable data. Since the accountable data is coming from one source, that source is the system of record for the property. What does the APSR definition mean for my property? Your government property can be in different APSRs depending on what your property is and how your data is maintained. – The type of data that must be maintained for an equipment item is not identical to the data maintained for a consumable item. This may require two or more separate systems or modules to maintain all types of property information. The DoD path forward is pointed to getting an enterprise system that can do all transactions, especially those of a financial nature. – The APSR information has a direct impact to the financial data contained in these enterprise systems. Since multiple modules or systems maintain records of property, it is important to identify the system(s) that holds the accountable record to be used for fiduciary purposes. – Once these systems or modules are identified as holding the accountable information, we will have a higher degree of assurance that the property is only being counted once in our financial information. APSR and Contractors Contractors are not expected to know the differences in DoD accounting of property. Their responsibility is proper care, use, and following the contract terms. It is the responsibility of the DoD to maintain this data prior to sending property or establish the data upon delivery. Contractors are not APSR system owners. The DoD must not be beholden to a non-commercial solution or to a single company which may control the software at large. Contractors are not APSR users. They may provide the DoD data, but they are not the ultimate responsible party. In order to maintain checks and balances, it is inappropriate for a contractor to directly edit data within an APSR. 30 APSR in Policy 40 U.S.C. Section 524 – Each executive agency shall maintain adequate inventory controls and accountability systems for property under its control DoDI 5000.64 – Heads of the Components shall establish accountable property systems of record (APSR); ensure the integration with core financial and other systems and processes, particularly those for logistics and acquisition. – Accountable Property Officers shall ensure electronic interfaces are used between the APSR and mandated enterprise systems (e.g., Wide Area Workflow). – Third party property management or accountability systems, such as custodial systems, shall not supersede or replace the APSR or the accountable property records maintained by the Department of Defense. – APSR is defined as: the Government system used to control and manage accountable property records; a subset of existing organizational processes related to the lifecycle management of property; the system that is integrated with the core financial system. DoD 7000-14 (Financial Management Regulation) – Broadly categorized as a “Feeder System” – APSR used throughout Volume 4, Chapter 6 in the context of recording property data 31 Connections APSR must have DoD property data for audit. Full audit must be complete by 2017. Quality property management is essential to audit readiness (fundamental basis of E&C). Leadership is essential for success. “And miles to go before I (we) sleep…” DoD IG Audits on Property DODIG-2014-054 - Defense Logistics Agency Land and Maritime Paid Too Much for High Mobility Multipurpose Wheeled Vehicle Repair Parts DODIG-2014-038 - Air Force Life Cycle Management Center Could Not Identify Actual Cost of F119 Engine Spare Parts Purchased From Pratt and Whitney DODIG-2013-105 - Navy Did Not Develop Processes in the Navy Enterprise Resource Planning System to Account for Military Equipment Assets DODIG-2013-080 - Better Oversight and Accountability Needed for the U.S. Army Special Operations Command C-12 Aircraft DODIG-2013-026 - Supply Support Activities in Afghanistan Could Be Managed More Effectively to Improve Inventory Accountability DODIG-2013-025 - Accountability Was Missing for Government Property Procured on the Army's Services Contract for Logistics Support of Stryker Vehicles DODIG-2013-018 - Deliveries and Payments for the Defense Advanced GPS Receivers Met Contract Terms, but Property Accountability Needed Improvements DODIG-2012-139 - Improvements Needed in Transparency and Accountability of U.S. Army Reserve Component Equipment Transfers (Redacted) Audits related to GFP General Accountability Office (GAO) GAO-04-779, Navy Needs to Improve the Management Over GovernmentFurnished Material Shipped to Its Repair Contractors, July 23, 2004 US Army Audit Agency (USAAA) Report No. A-2005-0126-FFE, Management of Government Furnished Property, U.S. Army Garrison, Fort Hood, Texas, dated, Mar 4, 2005 GAO Report No. GAO-08-316R. Subject: Defense Logistics: The Army Needs to Implement an Effective Management and Oversight Plan for the Equipment Maintenance Contract in Kuwait, dated January 22, 2008 DoD Inspector General (DoD IG) Report No. 2009-089, Internal Controls Over Government Property in the Possession of Contractors at Two Army Locations, dated June 18, 2009 USAAA Report No. A-2009-0183-ALL, Applying Agreed-Upon Procedures to Determine if There Was a Potential for Theft of Property and Loss of Funds to the Government Due to the Actions of a Government Property Administrator, dated August 14, 2009 USAAA Report No. A-2010-0018-ALL, Audit of Management and Visibility of Government Property Provided to the Contractor Performing Bulk Fuel Operations in Kuwait, dated December 17, 2009 Air Force Audit Agency Report No. F2010-0005-FB3000, Government Furnished Equipment Financial Statement Reporting, dated January 11, 2010 USAAA Report No. A-2010-0133-FFE, Time Sensitive Report - Accountability of Contractor Acquired Property, Audit of Planning for Disposal of Chemical Demilitarization and Storage Facilities, dated July 13, 2010 DoD IG Report No. D-2010-088, Accountability and Disposition of Government Furnished Property in Conjunction with the Iraq Drawdown – Logistics Civil Augmentation Program, dated September 30, 2010 FIAR Audit Readiness Audit Readiness efforts ARE NOT JUST for being Audit Ready! Its about “Day to Day” business processes & improving Operational Readiness by: • • • • Eliminating Losses Eliminating Excess Acquisitions Increase Asset Utilization and Increase productivity through Standardized Processes • Financial transactions accurately reflect business activity What are we doing now Analyzing and improving business processes Establishing procedures Correcting deficiencies Maintaining documentation Using technology (systems, AIT, electronic forms) Educating the organization Where are we going Short term goals – Audit readiness efforts • E&C • Valuation • Supporting Documentation – Establishing baseline property records Long term goals – – – – Repeatable processes Continuous improvement Educated workforce Consistent application of policy How do we maintain the course Statistical sampling Physical inventory techniques Collaboration between disciplines Open communication Evaluate for improvement Annual training requirements Self assessments Tone from the Top to Bottom Accountability Path Forward Four Concepts to making accountability manageable and approachable: 1. Processes: the “how-to” of management 2. Systems: the “tools” of management 3. Records: the “documentation” of management 4. Methodology: ways to improve processes, systems, and records Processes Examples of processes for how DoD manages and is accountable for government property: – Acquisition FARS and DFARS regulations – Issues and returns, distribution techniques, utilization – Physical inventories At a minimum, every three years for unclassified and non-sensitive property per DoDI 5000.64 – Operating procedures – Disposition Systems – Helps demonstrate how DoD maintains control and accountability over assets. Examples include: Accountable property systems of record (APSRs) Accounting systems Logistics systems Supply systems Maintenance systems Per DoDI 5000.64: – DoD Component Heads shall establish APSRs and ensure the integration with core financial and other systems and processes (acquisition and logistics) – Accountability is to be established and maintained using information technology; the use of automatic identification technologies is mandatory Accountable Property System of Record (APSR) – Should have sufficient capability to maintain records suitable for audit – An important tool in managing accountable property records, which can include: Any stock record account Organizational record Installation property book Clothing and equipment record Any file that supports and/or documents property accountability APSR requirements are located in DoDI 5000.64 Records – All actions that affect an item typically have some form of record to accompany it. Examples include: Standard forms, e.g. DD250 Custodial records, inventory documents, bills of lading Accountable property records Maintenance logs Usage logs (e.g. flight hours, miles driven, operational hours) – Per DoDI 5000.64, accountable property records must: Be kept current and available Reflect current status, location, and condition of all assets until disposition Provide a suitable audit trail of all transactions Methodology DoD approach: continuous process improvement – Analysis of day to day business should be regularly performed to develop maximized management maturity – Improving methodologies gives higher accountability of assets, taxpayer confidence, and stewardship. Do we have the appropriate personnel in place to ensure operational efficiency? Are adequate controls in place to ensure compliance with laws and regulations, protection against fraud, waste, and abuse, and reliability of financial and accountable data? Are the records kept in an accessible way? How many steps are in this process to reach the end? Can we prove our accountability over property with an audit? Testing our Processes and Methodology Audits – A financial audit examines records tied to accounting practices and economic transactions – Performance audits show how well day to day processes are executed Audits can help identify ways to improve methodologies by showing strengths and weaknesses in processes, systems, and records. DoD Audits DoD audits focus on management’s assertions: – Does the equipment recorded in the financial statements exist (can we go out and touch it)? – Can equipment be traced from its physical location to a financial or accountable property record? – Does DoD have rights (ownership, etc.) to the equipment or obligations (liabilities) on the equipment? Transaction Audits – An audit trail is a transaction-based history of asset activity, including: Receipt and acceptance Modifications Improvements Individual additions and deletions, for all accountable property throughout its life cycle – Must include dollar value, maintenance, and adjustments so that the quantity and dollar value on the accountable property record reconciles with the general and subsidiary financial ledgers – Records must continuously document the status of the personal property, from receipt through all stages of the life cycle Takeaways Lots of progress has been made Current efforts are on the right path Still more work to be done Leverage AIT and System improvements Maintain a knowledgeable workforce Cross-functional approach to processes Continuous improvement of accountability Important to everyone; lead by practice When we each do our part Remember… 3 legged stool Audit Readiness and Accountability Logistics Program Offices Questions? Comments? Contact us at: Amber.L.Propert.civ@mail.mill For general questions and information, visit our website: http://www.acq.osd.mil/pepolicy/ Thank You! 50