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