Federal Property Plant and Equipment (PPE) Accountability and Auditability Issues An Update Deloitte...
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Transcript of Federal Property Plant and Equipment (PPE) Accountability and Auditability Issues An Update Deloitte...
Federal Property Plant and Equipment (PPE) Accountability and Auditability IssuesAn Update
Deloitte Financial Advisory Services LLP 2010
Copyright © 2009 Deloitte Development LLC. All rights reserved.2
• Asset accountability and financial auditability are closely aligned
• Same life cycle
• Cost recognition with full acquisition and improvement costs
• In-service dates and status
• Retention of documentation substantiating property unique identifiers
– BUT accountability and financial auditability have some differences
• Property records, discrete vs per contract or payment
• Physically used and moved
• Custodial assignment, location, and condition impacts the record
– How to integrate the activities to reduce the effort
Accountability and auditability
• Two parallel flows •Two divergent objectives• Two parallel flows •Two divergent objectives
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• Silos of responsibilities, systems and procedures
Why are they on parallel paths? (parallel means they never meet! )
Accountability
Plan Acquire Use Maintain Re-deployDispose/ Donate
Budget Buy/PayDepreciate
Report Retire costTransactions
Financial Reporting
Management Reporting
DisconnectsCreate Issues
Accounting
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• The common and the connection: data and processes
Why are they on parallel paths?
Plan Acquire Use Maintain RedeployDispose/ Donate
BudgetRecord
Addition
Depreciate Record Transfer
Retire AssetReconcile
Financial Reporting
Management Reporting
Coordinated process can
yield substantial benefits
co
nn
ec
tors
Accountability
Accounting
Copyright © 2009 Deloitte Development LLC. All rights reserved.5
Accountable Property
• Property Systems
• Descriptive records for all assets
• Central system
• Maintain asset record through disposal, monitoring custodial assignment, location and condition
Programs /Operations
• Materials or warehouse
• Location and logistic information
Financial
• Full cost information for all assets procured under programs
• By contract, task order, voucher, invoice, NOT asset
Systems / Procedures
Accountable Property
• Example: DoD 5000.64
Programs or Operations
• Program purchases
• Receipt and deployment
Financial
• SFFAS 35, 6 and 23
• By contract, task order, voucher, invoice, NOT asset
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• Differing priorities and focus
• Different backgrounds and cultures
• Lack of a life cycle approach to property management and accounting
• Lack role to coordinate people, policies and systems
• Lack of systems that fully integrate capital budgeting, procurement, and fixed asset management and accounting
This isn’t new, so why are there issues?
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The life cycle approach considers:
• The organization’s mission
• Property types
• Integrated facets and flows
• Stakeholder management
• Property life cycle events
• Issues specific to property categories within life cycle events
• Environments in which the property is managed
Life cycle approach
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• Audit remediation – Documenting PP&E Assertion Packages for a organization responsible for building and
sustaining global information and computing infrastructure
• Valuation of contract transfer property – Recording of assets under a service agreement in preparation for a contract transfer
• Discrete record creation – Validating real property acquisition costs and creating componentized records for a
scientific agency with research facilities
• Property management and inventory procedures – Developing property management procedures and performing pilot-site procedure
testing for commands in a Military Department for financial improvement
• Property accountability processes to reduce loss and fraud– Creating processes for accountability that aligns standardization between headquarters
and field sites
Typical federal property situations
Copyright © 2009 Deloitte Development LLC. All rights reserved.9
Basic circumstances
• Government agency needed to prepare assertion packages for PP&E balances as prelude to audit
• Had multiple sites throughout the country and around the world
• No written procedures for conducting physical inventories
• Had 2 WCFs and a general fund, each of which used a different accounting system
• No Fixed Asset accounting organization
Audit remediation scenario
Primary problems• Large scale programs
@̶ Capital assets not on balance sheet@̶ No reconciliation between programs and balance
sheet@̶ Assets transferred among funds without transfer of
program costs@̶ Ancillary costs, e.g., transportation and installation
costs, were not being added to calculate full costs of capital assets
• Source documentation for asset purchases was widely scattered and not pulled together to support asset valuations
• Capital budgeting was not integrated with procurement or accounting – resulting in the expensing of many capital assets
• Hundreds of $M spent on capital leases for telecommunications infrastructure was inaccurately expensed
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• Perform diagnostics on both accountability and auditability to determine extent of problems and likely solutions
• Perform inventories and extensive testing of property records/values
• Reengineer and document consistent property management business processes
• Collect and validate source documents to support asset values
• Establish a Fixed Asset accounting group to create skeletal records for capital items, tracking from budgeting through procurement, receipt and installation
• Develop journal entries to correct financial statement balances
• Prepare Assertion Packages
Audit remediation solution
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Basic circumstances
• Commands wanted to establish uniform procedures for personal property
• Existing procedures were non-uniform from command to command and inconsistently applied
• No written procedures for inventories
Property management and inventory procedures scenario
Primary problems
• Many missing records for accountable property (not in DPAS)
• Roles, responsibilities, and internal controls poorly defined
• Receiving function fragmented and not well controlled
• Source documents not maintained to support asset valuations
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• Develop written procedures for physical inventories
• Document “As Is” property management business processes at multiple installations
• Develop “To Be” property management business processes
• Create Tickler Files for capital assets based on procurement records and tracked through receipt and installation
• Write new procedures based on “To Be” property management business processes
• Test new procedures at Pilot sites
• Conduct orientation and training for roll-out of new procedures
Property management and inventory procedures solution
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The life cycle elements
ACQUIRE UTILIZE AND MANAGE DISPOSE
Life Cycle Events
Ass
et
Man
agem
ent P
lan
Str
ateg
ic P
lann
ing
Bud
getin
g an
d F
undi
ng
Req
uire
men
ts
Pla
nnin
g
Org
aniz
atio
nal
Res
pons
ibili
ties
Acq
uisi
tion
and
Leas
ing
Rec
eipt
, Id
entif
icat
ion,
and
T
aggi
ng
Rec
ords
, C
lass
ifica
tion,
C
ateg
oriz
atio
n,
and
Cos
t R
ecog
nitio
n
Acc
ount
ing
and
Val
uatio
n
Con
trol
, A
ccou
ntab
ility
, an
d O
wne
rshi
p
Con
trac
ts a
nd
Gra
nts
Adm
inis
trat
ion
Loca
tion,
T
rack
ing,
and
T
rans
fers
Saf
ety
and
Sec
urity
Ris
k M
anag
emen
t, In
sura
nce,
and
Lo
st D
amag
e, a
nd
Des
truc
tion
of
Pro
pert
y
Mai
nten
ance
, C
ondi
tion
Ass
essm
ent
Phy
sica
l Inv
ento
ry
Con
sum
ptio
n an
d U
tiliz
atio
n
Env
ironm
enta
l
Sto
rage
and
W
areh
ousi
ng
Scr
eeni
ng a
nd
Exc
essi
ng
Dis
posa
l
Ret
irem
ent
Financial flow
Ass
et
Man
agem
ent
Pla
n
Recording flow
Use flow
Life Cycle Events
Ass
et
Man
agem
ent
Pla
n
Ass
et
Man
agem
ent
Pla
n
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Accountability
• Assess procedures /responsibilities– Entire life cycle- program and property
– Procedural operations – asset handling
– Recording in property system
• Test– Data in property system – anomalies
– Test asset existence, book to floor and floor to book
– Trace source documents and validate values
• Assess business processes– Procurement contract flow-downs for PIPC &
contractor reporting requirements
– Property management processes
• Develop baseline accountability diagnostic
Property diagnostic approach
Auditability
• Assess policies & procedures@̶ Budgeting and obligating for capital acquisitions
@̶ Recording full acquisition costs in subsidiary property system
@̶ Establishing depreciation schedules
• Assess asset classifications@̶ Test selected asset classifications against US Standard GL classifications
• Assess congruence of GL and subsidiary property system
@̶ Trace monthly acquisitions & dispositions from subsidiary to GL
@̶ Confirm beginning balance GL + value of monthly activity = ending balance GL
• Develop baseline balance diagnostic
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Accountability
• Execute remediation based upon baseline accountability diagnostic– Policy/Procedures
– Data completeness & accuracy
– Source Documentation & valuations
– Business Processes
• Develop adjusted accountability baseline
Reconciliation — accountability and auditability
Auditability
• Execute remediation based upon baseline balance diagnostic
@̶ Capital budgeting & obligations@̶ Full costs@̶ Depreciation@̶ Asset classifications@̶ Monthly postings
• Combine accountability and auditability adjustments
• Develop adjusted baseline value
Single Reconciled Cost associated with Discrete Asset
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Challenges of audit readiness
• Many Federal agencies present unique challenges for property, plant, and equipment (“PP&E”) accountability
• Limited history and culture of financial statement audit
• ERP implementation
• IG relationship and coordination
• Limited successes to emulate
• Requirements– CFO Act of 1990
– SFFAS Standards
– Bulletin No. 01-02, Audit Requirements for FederalFinancial Statements
– OMB Circular A-123
– GAAS/GAGAS/Yellow Book Standards
Challenges to audit readiness
Regs.Audit
readinessPP&E
accountabilityCulture
Progress is uphill clim
b
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Approach to successful and sustained audit readiness includes three concurrent perspectives
• Audit readiness– Knowledge of regulatory requirements
– Understanding of unique agency environment
• Accountability– Defining assets
– Creating records
– Ongoing management
• Systems implementation– Data integrity
– Data migration
– Reporting
Sustaining accountability and auditability
Aud
itabi
lity
Accountability
Systems implementation
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Establishing an auditable PP&E baseline
Existence Completeness ValuationRights and obligations
Presentation & disclosure
The Five PP&E Assertion Parameters/Activities
• Identify PP&E population
• Establish testing procedures
• Conduct existence testing
• Analyze results• Use existing records• Develop new records
• Conduct interviews• Establish population• Develop test plan• Conduct
completeness testing• Reconcile exceptions
• Assemble records• Establish testing
procedures• Test values• Analyze results• Use/supplement
existing values• Revalue using source
documentation• Revalue using
alternative methods
• Research issues• Establish testing
procedures• Analyze results
• Assemble assertion packages
• Assist statement adjustments
Resulting in:
Clean & Accurate Records
Auditable Statements
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Key takeaways or questions
Process
Systems
Policies
Metrics
• •
• •
• •
• •
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Copyright © 2009 Deloitte Development LLC. All rights reserved.Member of Deloitte Touche Tohmatsu