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Accountability and auditability

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Presentation on theme: "Accountability and auditability"— Presentation transcript:

0 Federal Property Plant and Equipment (PPE) Accountability and Auditability Issues An Update
Deloitte Financial Advisory Services LLP 2010

1 Accountability and auditability
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 Why cost—that’s where the disconnect seems to be. Two parallel flows • Two divergent objectives Two parallel flows • Two divergent objectives

2 Why are they on parallel paths? (parallel means they never meet! )
Silos of responsibilities, systems and procedures Accountability Plan Acquire Use Maintain Re-deploy Dispose/ Donate Management Reporting Disconnects Create Issues Accounting What are the people, procedures, and systems that support these flow? Budget Buy/Pay Depreciate Report Retire cost Transactions Financial Reporting

3 Why are they on parallel paths?
The common and the connection: data and processes Accountability Plan Acquire Use Maintain Redeploy Dispose/ Donate Coordinated process can yield substantial benefits connectors Accounting What are the people, procedures, and systems that support these flow? Budget Record Addition Depreciate Record Transfer Retire Asset Reconcile Financial Reporting Management Reporting

4 Systems / Procedures Accountable Property 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 Accountable Property Example: DoD Programs or Operations Program purchases Receipt and deployment Financial SFFAS 35, 6 and 23 By contract, task order, voucher, invoice, NOT asset

5 This isn’t new, so why are there issues?
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

6 Life cycle approach 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

7 Typical federal property situations
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 DISA NMCI

8 Audit remediation scenario
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 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

9 Audit remediation solution
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

10 Property management and inventory procedures scenario
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 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

11 Property management and inventory procedures solution
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

12 The life cycle elements
Financial flow Asset Management Plan Recording flow Asset Management Plan Life Cycle Events Risk Management, Insurance, and Lost Damage, and Destruction of Property Records, Classification, Categorization, and Cost Recognition Asset Management Plan Strategic Planning Budgeting and Funding Requirements Planning Organizational Responsibilities Acquisition and Leasing Receipt, Identification, and Tagging Accounting and Valuation Control, Accountability, and Ownership Contracts and Grants Administration Location, Tracking, and Transfers Safety and Security Maintenance, Condition Assessment Physical Inventory Consumption and Utilization Environmental Storage and Warehousing Screening and Excessing Disposal Retirement Life Cycle Events ACQUIRE UTILIZE AND MANAGE DISPOSE Asset Management Plan Use flow

13 Property diagnostic approach
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 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

14 Reconciliation — accountability and auditability
Execute remediation based upon baseline accountability diagnostic Policy/Procedures Data completeness & accuracy Source Documentation & valuations Business Processes Develop adjusted accountability baseline 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

15 Challenges to audit readiness
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 , Audit Requirements for Federal Financial Statements OMB Circular A-123 GAAS/GAGAS/Yellow Book Standards Progress is uphill climb Culture PP&E accountability Audit readiness Regs.

16 Sustaining accountability and auditability
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 Auditability Accountability Systems implementation

17 Establishing an auditable PP&E baseline
The Five PP&E Assertion Parameters/Activities Existence Completeness Valuation Rights and obligations Presentation & disclosure 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

18 Key takeaways or questions
Process Systems Policies Metrics

19 About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries Copyright © 2009 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu 19


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