Finance, Procurement, and Property Management: A Total Team Effort! Steven F. Holland, CPPM CF Logistics Management Institute Robert Kaehler, CPPS Ascot

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

Steven F. Holland, CPPM CFLogistics Management Institute

Robert Kaehler, CPPSAscot Associates

Finance, Procurement and Property Management: A Total Team Effort

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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!


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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


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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 - Nearly $1.5 Trillion in Personal Property

* Capitalized Assets Only!


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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


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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


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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


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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

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KEY STATUTES AND STANDARDS

Exploring the landscape for financially accounting for our assets



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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)


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• 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


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• 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


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• 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


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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 results-oriented 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


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Control Guidance

• 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


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Control Guidance

• 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. 15th


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Control Guidance

• 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


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• 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

Control Guidance


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• 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

Control Guidance


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– 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

Control Guidance


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– 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

Control Guidance


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– 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 Government-developed

Control Guidance


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

* NEW *

Control Guidance


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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


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• 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 Management


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• 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



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– 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



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– 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



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– 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



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• 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



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• 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



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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


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• 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


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• 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 in managing government programs

• achieve compliance with federal statutes and control guidance

Auditability

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TYING THE PIECES TOGETHER

How Property/Asset Management Supports the Five Management Assertions



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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


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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


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Audit Assertion

• Existence and Occurrence

– The property record

– Physical inventory results

– History timeline

– Documentation


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Audit Assertion

• Completeness

– Property Record

• Do transactions match finance and procurement?

• All required data elements captured?

(FAR and Agency Property Regulations)

• Are events documented?


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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?


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• 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


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• 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?

Audit Assertion


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Gotchas - Things we need to validate

• Actual Acquisition Costs

• Capital vs. Accountable

– Depreciation and amortization

• Proper Classifications

• Movements and Transfers

• LTDD

• Disposals


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SUMMARY AND FINAL THOUGHTS

Promoting the Team Effort


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Working Together

• Team Partnership

– Understanding each other’s organizational needs

– Cooperation

– Collaboration

– Coordination

– Providing Best Value to the American Taxpayer


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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/bulletins/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”

http://www.whitehouse.gov/sites/default/files/omb/assets/omb/bulletins/fy2007/b07-04.pdf

http://www.whitehouse.gov/sites/default/files/omb/assets/omb/bulletins/fy2007/b07-04.pdf

http://www.gao.gov/assets/240/236070.pdf

http://www.fasab.gov/pdffiles/sffas-3.pdf

http://www.fasab.gov/pdffiles/sffas-6.pdf

http://www.fasab.gov/pdffiles/fasab10.pdf

http://www.fasab.gov/pdffiles/original_sffas_44.pdf


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• 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)

Reference Information



http://www.ifac.org/sites/default/files/downloads/a017-2010-iaasb-handbook-isa-315.pdf

http://www.ifac.org/sites/default/files/downloads/a017-2010-iaasb-handbook-isa-315.pdf

http://epw.senate.gov/fpasa49.pdf

http://epw.senate.gov/fpasa49.pdf

http://www.whitehouse.gov/omb/financial_fmfia1982/

http://www.whitehouse.gov/omb/financial_fmfia1982/

http://www.gpo.gov/fdsys/pkg/PLAW-104publ208/pdf/PLAW-104publ208.pdf

http://www.gao.gov/special.pubs/af12194.pdf

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THANK YOU!

For more information, please contact:

Robert Kaehler [email protected] 925.209.0944

Steven Holland [email protected] 703.431.8407


mailto:[email protected]

mailto:[email protected]

Documents

Finance, Procurement, and Property Management: A Total Team Effort! Steven F. Holland, CPPM CF Logistics Management Institute Robert Kaehler, CPPS Ascot