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					      WORKING CAPITAL
          FUND
          PRESENTED BY:

    JOHN S. REIFSNYDER, CDFM

       GRADUATE SCHOOL
         INSTRUCTOR
1
     JOHNREIFSNYDER@COX.NET
            WORKSHOP FOCUS
 History  of Working Capital Funds (WCF)
 Organizations Utilizing WCFs
 Myths About WCFs
 Basic Concepts of WCFs
   Little or No Appropriated Funds
   Business-Like
   Budget Formulation and Execution
   Cost Accounting
   Stabilized Rates
   No-Year Funding
 Financial and Operational Concepts and
  Statements                                2
       HOOVER COMMISSION RECOMMENDATIONS

 Resulted    in passage of The National Security Act
 of 1947
     Business /Commercial type activities of the military
      departments are to be financed by revolving or
      working capital funds
     Established the Office Of The Secretary Of Defense
      and the Department Of The Air Force
     Created Comptroller positions with overall
      responsibility for financial systems
     Created Joint Chiefs of Staff
                                                         3
       WORKING CAPITAL FUND HISTORY
              AUTHORIZING LEGISLATION
 Public   Law 81-216
     National Security Act of 1947
 Codified   in 10 USC 2208
     The law authorized working capital funds to
      provide financing of industrial-commercial type
      activities, and to effectively control cost of
      programs and work performed
            by several DoD Financial
 Implemented
 Management Regulations
                                                        4
                    WORKING CAPITAL FUND
                          EVOLUTION
   1947 – National Security Act of 1947 authorized establishment of
    Revolving Funds
   1950’S AND 1960’S
      Stock and Industrial Funds
   1980’S – Improved product cost information
   1981-1985 – Navy ceased free issue of deport level reparables (DLRs)
       moved financing to the Stock Fund
   1983 – Asset Capitalization Program
   1991 – Army/Air Force moved DLRs to stock fund
   1992 – Defense Business Operations Fund established
   1996 – The Army, Navy, Air Force and Defense WCFs were
    established on December 11, 1996, the Defense Commissary
    WCF was established in 1999
                 WORKING CAPITAL FUND
                         WHAT IS THE WCF?
   A revolving fund financial structure established to promote Total
    Cost Visibility And Full Cost Recovery of support services
    provided to fund customers
   Receives little or no appropriated funding
   Uses reimbursements received from customers to fund its
    operating expenses
   Replaced the Defense Business Operations Fund (DBOF) that was
    established on October 1, 1991 merging the previously
    established stock and industrial funds and the defense
    commercial operations
   Derives its name from the cyclic nature of its “cash” flow
       APPROPRIATED-FUNDED ACTIVITIES
 Rely on annual congressional action
 Majority of funding is provided on an annual
  basis
 Agencies must obligate the appropriated
  funding or “lose” the unobligated balance for
  new obligations
 Without an appropriation, agency operations
  must stop
 Focus more on using all the appropriated
  funding rather than effective results or efficient
  performance
                                                       7
                REVOLVING FUND MYTHS
 Myth – Break even each year with no profit or loss
 Fact
     Provide customer price stability
     Produce an accumulated operating result of zero in the
      Budget Year
 Myth – is expensive and an excuse for poor
  management
 Fact
     Reports and makes visible all incurred costs
     Provides information for both WCF and customer managers
      to manage
                                                                8
               WCF CHARTER REQUIREMENTS
   Signed by the Secretary Of Each Service with approval by
    the Assistant Secretary Of Defense (Comptroller)
   Name and location of the activity
   Operating agency responsible for managing the activity
   Description of function and type of products/services
    offered
   Statement of exceptions


                                                               9
                   WCF ELIGIBILITY CRITERIA
   Criteria required to be included within the WCF financial
    structure
       Outputs (goods and services produced) can be identified
       Approved accounting system is available
       Customers identify products/services required
       Advantages/disadvantages of establishing buyer-seller
        can be evaluated
        CURRENT WCFS WITHIN DOD

 Army    Working Capital Fund
 Navy   Working Capital Fund
 Air   Force Working Capital Fund
 Defense   Working Capital Fund
 Defense   Commissary Working Capital
 Fund
              WCF BUSINESS AREA CUSTOMERS

   DOD organizations
   Non-DOD federal government agencies
   Private parties and concerns:
       Foreign governments
       State and local governments
       U.S. manufacturers, assemblers, or developers authorized
        by DOD

                                                             12
            NON-DEFENSE WCFS
 Department of Interior
 Department of Labor

 Department of Agriculture

 Government Printing Office

 Geological Survey

 Bureau of Engraving and Printing

 Federal Aviation Administration

 General Services Administration




                                     13
          OPERATIONAL STRUCTURE
   Currently the five DoD WCFs employ about 180,000
    civilians and 16,500 military personnel
   The five funds are expected to generate
    approximately $120 billion in revenue annually
   Finance operations without fiscal year limitations
   Sell goods to customers
   Use revenue received from customers to replace
    or buy inventory and finance the production of
    goods and services
             DEFENSE WORKING CAPITAL FUND (DWCF)
                     FY 2010 DWCF BUDGET
                                                FY 2008   FY 2009   FY 2010

Appropriation (Dollars in Billions)                $4.0      $1.5      $1.5

Personnel (Full-Time Equivalents in Thousands)
 Civilian                                         180.9     179.6     179.6
 Military                                          17.5      16.5      16.5
Total Personnel                                   198.4     196.1     196.1

DWCF Program (Obligation Dollars in Billions)
 Army                                              18.8      18.1      16.0
 Navy                                              24.6      25.4      25.4
 Air Force                                         22.7      23.0      21.9
 Defense-wide                                      54.4      47.9      48.6
 Defense Commissary                                 7.1       7.0       7.2
Total DWCF                                        127.6     121.5     119.1
                WORKING CAPITAL FUND
                    HOW IT WORKS
                                         CUSTOMERS
                                      OPERATING FORCES
                                     READINESS COMMANDS
                    APPROPRIATES
                       $ FUNDS      PLACE
                                                     PAY             BILL FOR
                                   ORDERS
                                                                      COSTS/
                               REVOLVING         WORKING             SERVICES
                                 FUNDS           CAPITAL
                                                   $$
    CONGRESS
  APPROPRIATED
    $ WORKING
      CAPITAL                FINANCES COST OF PERFORMING WORK
AT FUND INCEPTION


                                                 PRODUCTION       GENERAL &
            LABOR COSTS      DIRECT MATERIAL
                                                  OVERHEAD      ADMINISTRATIVE

                                                                             16
       OVERALL OPERATING CONCEPT
   Most funds originated at some point of time from
    an appropriation or capitalization of existing
    “equity” which formed the “corpus”
   Have to be authorized in law
   A revolving fund financial structure established to
    operate on a business-like basis
   “Works” on the basis of being reimbursed for
    goods and services sold rather than on an
    appropriated fund basis
                   WORKING CAPITAL FUND
                         CUSTOMER
18


      The   purchaser of support services:
          Determines requirements
          Requests funding through the budget process
          Balances readiness requirements and available
           resources
                   WORKING CAPITAL FUND
                         PROVIDER
19


         provider is the support activity that produces
      The
      goods or provides services:
          Satisfy customer requirements
          Provides best performance at lowest cost
          Use unit cost as a tool
          Ensures a READY - to - FIGHT Force
        FUNDED BUSINESS ACTIVITIES
                       COMMISSARIES (DECA)
                       DEPOT MAINTENANCE (ARMY, NAVY, AF)
Pre - WCF              DISTRIBUTION DEPOTS (DLA & NAVY)
                       FINANCIAL OPERATIONS (DFAS)
  Stock                INDUSTRIAL PLANT EQUIPMENT (DLA)
  Funds                INFORMATION SERVICES (NAVY & DISA)
                       LOGISTICS SUPPORT ACTIVITIES (NAVY)
                       PRINTING & PUBLICATION SERVICES (DLA)
 Industrial
   Funds      WCF      PUBLIC WORKS (NAVY)
                       REUTILIZATION & MARKETING SERVICE
                        (DLA)
 Support
 Support               RESEARCH & DEVELOPMENT (NAVY)
 Services
 Services
                       SUPPLY MANAGEMENT (ARMY, NAVY, AF,
                        DLA)
                       TRANSPORTATION (TRANSCOM, NAVY) 20
      WORKING CAPITAL FUND (WCF) BASICS - WCF
                OPERATING RESULTS
21


           Customers                Providers           Gain
                                                        Loss




               Revenue              Costs

     Stabilized Rates    Time Lag     Cost Control
      (Set in Advance)               (Execution Year)
             OPERATING CONCEPTS
 Builds   on business-like principles
           related to the needs and
 Operations
 requirements of customers
 Strives   to break even financially
 Requires a customer-provider
 relationship
     Customers determine requirements
     Provider reimbursed for products/services
      provided to customers                       22
    OPERATING CONCEPTS – CONT’D
 Focus on total cost visibility and full cost
 recovery for the Department’s support
 functions
              cost accounting systems
 Business-like
 with emphasis on cost per unit of output
 “Free” of many Congressional funding
 limitations
 Long   term objective is to break even
                                                 26
               OPERATING LIKE A BUSINESS
 Must produce
    Quality product
    On time
    At least possible cost
 Buyer-Seller Relationship

    Customers pay for what they receive
    Production dependent upon customer orders
    Must remain competitive
 Operates on a break even point basis over time

 Has its own inventory

 Purchases and depreciates capital equipment
STABILIZED PRICE AND RATE MANAGEMENT

 WCF business entities operate on a break-even basis
 Customer prices and rates are established on an end product basis

   Prices and rates are established during the budget process at
    levels estimated to recoup:
             - budgeted cost of goods and services provided
             - prior period gains and losses
             - as well as approved surcharges for capital asset
    acquisition
   Budget process is the mechanism used to ensure adequate
    resources are budgeted in the customer’s appropriated fund
    accounts to pay the established prices and rates
   Stabilized rates protect the customer’s buying power…which
    ultimately, protects Service readiness
              RATE STABILIZATION OBJECTIVES

   Provide Budget Stability to Customers

   Assure Comparable Funding Levels Between WCF and
    Customer Funds

   Ease in Budgeting for Inflation

   Develop More Realistic Programs

   Promote More Efficient Planning

   Foster Better Program Execution
         STABILIZED RATE CONCEPT POLICY
   Established to Recover:
       Operating Expenses
       Profits (Losses)
       Working Capital To Acquire Assets
       Plan AOR to Reach Zero at the conclusion of the execution year
   Rates Held Stable Throughout Each Year
       Exclusions:
       FMS
       Non-federal Customers
       Base Closures
       Inventory Sales-tenants/satellites
       Army RESET
                        WCF BUSINESS AREAS
   Two categories of business areas for rate setting
    purposes

       Supply Management

           Uses commodity costs in conjunction with a cost recovery
            factor to establish customer rates/prices

       Non-supply Management (depot maintenance, R&D, distribution
        depots, etc)

           Use unit cost rates based on output measures, (cost per direct
            labor, cost per product, cost per item received or shipped)
                     SUPPLY MANAGEMENT
 Finances the costs of inventories, supplies, and
 equipment from the time material is requisitioned
 until issued for use or consumption. Specific
 objectives are to:
     Provide a decentralized system of sound financial and
      supply management
     Provide a flexible system responsive to supply
      requirements
     Provide a uniform and simplified accounting and reporting
      system
            NON-SUPPLY MANAGEMENT
 Finances end-items such as Headquarters Services,
  common services, maintenance depots and research
  and development activities
 Normally develop and assign unit costs based on
  identified output measures
    Assigned unit costs include cost per direct labor
     hour, cost per product unit, cost per item received,
     cost per item shipped, and cost per accounting line
     processed
COST REIMBURSEMENT PROJECT ORDERS

 Performing activity will notify the ordering activity promptly
  upon learning of any significant change in costs
 If it becomes evident that goods or services to be provided
  will exceed the estimated costs, the performing activity will
  immediately notify the ordering activity and curtail or cease
  performance, as necessary, to avoid exceeding the
  estimated cost.
 May result in violation of 31 USC 1301 and 1341
             CUSTOMER’S WORKLOAD PROJECTIONS

Customer’s Workload Projections Affect More Than One Business Area:

  Turns in reparable and                            Ships Depot Level Reparable
                                 Supply
  orders new stock                                  (DLR) to Depot Maintenance
                               Management

                           1                    2

                                                          Depot
                               Transportation
                                                       Maintenance
                           4                    3
     Customer

  Stores DLR for eventual       Distribution        Repairs DLR and ships to
  delivery to customer             Depot            Distribution Depot

                                                                           32
   WHAT’S IN THE RATES WCFS CHARGE THEIR
     CUSTOMERS? (DEPOT MAINTENANCE)

A rate has three components:
     Direct Costs
       Direct Labor – welder
       Direct Materiel – engines
       Direct Other – TDY, Contract Services
     Indirect (Overhead)
       Mission
              Within Shop– supervisor

              Above Shop– director

       Non Mission
              BOCIE – janitor

              G&A – activity commander

     Accumulated Operating Results (AOR) Recovery
                                                     33



                                                          33
             WHAT IS ACCUMULATED OPERATING RESULTS?
   Remember the WCF goal is to break even?
      Why break even? Because WCFs need just sufficient spending
       authority to operate
      Any excess takes away from the readiness money for operations
   The mechanism for controlling profit and loss is Accumulated Operating
    Result (AOR).                                                              This is used to
                                                                               calculate your
   What’s the difference between NOR and AOR?                                       rate
      Net Operating Result (NOR) is your profit and loss statement. Every
       business has one.
         It’s your operating results for the current year

      AOR is cumulative gains or losses from operations                                               AOR
                                                                                                       NOR




                                                                                     Cumulative NORs
         In private business, AOR would be considered retained earnings

         It’s a running total of NORs                                                                 NOR
                                                                                                       NOR
                                                                                                       NOR
                                                                  This is used for
                                                                  Execution! How                       NOR
                                                                are you doing This
                                                                       Year?
                                                                                                             34
          WORKING CAPITAL FUND (WCF) BUDGET

   Developed from the bottom up by element of direct expense (Labor,
    Material, Contractual Services, Etc.) and top down for overhead costs
    (Production Overhead Expense And G&A)

   Constrained By Factors Not Found In Private Sector Businesses:

       OSD/OMB Directed Inflation Rates
       Limitations on Manpower
       Legislative Constraints
       Stabilized Prices
       Zero Profit/loss Goals
                 INTERNAL OPERATING BUDGET (IOB)
36


        Cost center budget providing an approved operating plan for
         each activity/organization

        IDENTIFIES:

            Direct/indirect labor hours

            Expenses - salaries & wages, materials & other

        PURPOSE:

            Control expenses

            Develop cost application rates
                             IOB FUNCTIONS
37


        Fixes responsibility for controlling resources and costs

        Provides means of monitoring and controlling resources and
         costs

        Facilitates comparison between projected and actual
         performance

        Basis for developing work center rate
                             IOB DEVELOPMENT
38


        IOB Development – Direct Cost
            Direct cost for labor and material are projected by
             considering both historical costs and the projected
             workload for each productive cost center

            Consider other direct costs for contractual support and
             TDY for depot field teams

            Total direct costs for each productive cost center are rolled
             up to a total depot budget
                           IOB DEVELOPMENT – CONT’D
39

        IOB DEVELOPMENT - OVERHEAD COSTS

            Developed by element of expense

            Distributed to the productive cost centers based on anticipated direct
             labor hours for each productive cost center

            Two basic types of overhead cost:

                Production overhead - overhead identifiable to the productive cost
                 center

                General & Administrative (G&A) - not reasonably identified to a
                 productive cost center
                ANNUAL OPERATING BUDGET (AOB)
40


        Funding document which provides the basis for earning
         budget authority

        Includes an operating and capital budget

        Operating budget identifies unit cost output and associated
         unit cost goal

        Capital budget provides obligation authority for investments
                                 PROJECT ORDERS
41
        Same as a commercial contract to the customer’s appropriation

            Extends beyond the life of the appropriation. Up to five years after the
             appropriation expires for new obligations

            Over-billing may create a 31 USC 1517 violation

        Normally issued for the overhaul or manufacturing of a specific
         number of items within a specific time frame for a specific price

        WCF activity should incur costs of not less than 51% of the total costs
         to performing the work

        The WCF must not accept the project order if the requirements of the
         project order regulations are not met
              ECONOMY ACT ORDER CHARACTERISTICS
42


        Order Not Meeting “Project Order” Criteria

        Expires With Appropriation Cited

        Limited To Service In Current Fiscal Year

        Involves Routine Maintenance Or Day-to-day Operation

        May Cover Education, Training, Storage, Welfare Or Travel

        WCF Activities Who Incur Costs Against Expired Economy Act
         Orders May Violate 31 USC 1517
                          COMMANDER’S ORDERS
43


        Work of an emergency nature

        Conditions:

            Written assurance or equivalent documented communication
             that an order will be issued promptly

            Bona fide need

            Expires not later than 30 days from date of issuance

            Signed by the commander or his authorized representative
     ORDER IMPACT ON CUSTOMER/ PROVIDER “BOOKS”                                  44




Provider Books
     Orders Received               Reimbursements Earned                     Collections           Unfilled Orders


MIPR ACCEPTANCE           $ 1.3M   $ 1.216M                          $ 1.216M                  $ 84K
FY ’10 – 16 – Available
To complete Work thru              Billed to Customer based on                                 Should complete work by
30 Sept., 2016                      Cost In support of the Project                             30 Sept. 2016
                                   (SF 1080 bill submitted)
Assumes O&M customer




Customer Books

     Obligations                         Expense/Asset                 Payment / Liquidation   Unliquidated Obligations


MIPR ACCEPTANCE           $ 1.3M   $ 1.216 M                         $ 1.216 M                 $ 84K

Project Order                      Based on SF 1080 Bill                                       Must be de-obligated if not
(DD 448-2)                                                                                     Completely liquidated by
                                                                                               30 Sept. 2016
                     COST ACCOUNTING
   A specialized branch of accounting which deals with the
    determination of cost
   Provides management with the tools to plan, budget, control,
    and evaluate operations

   Collects cost and production data

   Serves as a subsidiary ledger for the general ledger

   Basis of billing for work performed
        COST ACCOUNTING - COST ACCOUNTING
               SYSTEM REQUIREMENTS

   Identification of all products and services within an
    organization

   Identification of all costs, both funded and unfunded,
    of the products and services produced

   Underlying discipline:

       Relates dollars of cost to product or service
        produced
COST ACCOUNTING - TWO PRINCIPLE COST
       ACCUMULATING SYSTEMS

       Job   Order Costing

        Process   Costing
     COST ACCOUNTING - JOB ORDER COSTING
   Each individual job order is tracked independently

   Material and parts are “drawn” for a particular job

   Labor hours charged by artisans to the job they are
    working on

   Overhead is applied to direct jobs based on
    predetermined rates
          COST ACCOUNTING - PROCESS COST
                   ACCOUNTING
   Method of accounting used when it is not possible to
    accurately associate costs with specific job orders

   Permits uniform distribution of labor costs for direct
    support functions where reporting by individual job
    order is difficult to identify
                     DIRECT/INDIRECT COST CENTERS
50


        Direct cost center
            Majority of effort is associated with actual production of work

        Indirect cost center
            People and resources generally do not come in contact with end
             items
               ELEMENTS OF COST

                       THESE ELEMENTS OF COST ARE DIRECT WHEN
   LABOR               REQUIRED SOLELY FOR THE BENEFIT OF A
                        SPECIFIC CUSTOMER ORDER (JOB ORDER)

   MATERIAL


   CONTRACT           CLASSIFIED AS INDIRECT WHEN IDENTIFIED AS
                        SUPPORT TO THE PRODUCTIVE ORDER
                        i.e..PROD. OVERHEAD OR G& A

   OTHER
                              TYPES OF RATES
52


        Cost application rate

            Cost center labor rate for salaries and benefits

            Overhead cost applied to that cost center

            Excludes:

                Direct Material

                Other Direct Costs - Contracts, TDY,etc.
                               RATE DEVELOPMENT
53

        Average labor rate

            Base labor

            Fringe benefits

            Leave

        Overhead applied rates

            Production overhead

            General and administrative expense
                      ACCELERATION CHART

Annual
Leave Account
                                       PAID TO
Sick                                   EMPLOYEES
                                                                         Liability
Leave Account                          ON LEAVE
                                                                         accounts for
                                                                         fringe benefits
Other                                                                    increase from
Leave Account                                                            acceleration
                                                                         and decrease
                                                                         from payments.
CSRS/FERS
                                       PAID TO                           Eventual
Account
                                       GOVERNMENT                        balance equals
                                       AGENCIES                          zero
*Other Fringe
Benefit Accounts

                   *Includes FICA, health insurance, life insurance, and Medicare portion
                   of FICA for CSRS employees                                         54

                   Cost Accumulation and Cost Recovery Fringe Benefit Cycle
                   COST APPLICATION RATE

   Direct labor
    •   Salaries and benefits of personnel directly identifiable to a
        specific job
   Production overhead expenses
     Not identifiable to a specific job
     Within and above shop overhead
     Mission costs in support of the productive effort

   General and administrative expenses
     Not identifiable to a specific job
     Costs in support of activity

                                                                        55
56
                   COST APPLICATION RATES USE

        To apply costs to individual jobs

        EXAMPLE:

            Average Labor Rate X DLH = Labor Cost

            Overhead Rates X DLH = Overhead Cost Applied

            Add: Direct Material Cost Other Direct Cost = Total Cost
                        WCF COST ELEMENTS
57                     DEPRECIATION EXPENSE
        Depreciation is the expending of capital assets over the
         useful life of the asset

        Depreciation expense included in the stabilized rates of
         prices to generate cash

        Capital surcharge added to the rates as required

        Depreciation on a straight line basis
                          WCF COST ELEMENTS
            MAJOR REAL PROPERTY MAINTENANCE AND REPAIR
                           (MRPM&R)
58




        Costs associated with repair and renovation of buildings,
         structures, warehouses and other real property
         owned/operated by the WCF

        Expensed in the period when the maintenance and repair
         occurs

        Included in the WCF operating budget

        Passed on to customers in the stabilized rates/prices
                          WCF COST ELEMENTS
59
                        MILITARY PERSONNEL COSTS

        Included in the total cost of operations of the WCF activities
         at the Civilian equivalent rates shown in DOD FMR
         7000.14R, Volume 11A

        Stabilized customer rates and reimbursement to the MPA are
         not based on the civilian equivalent rates but on the
         absolute total dollar amount specified in the President’s
         budget
                        WCF COST ELEMENTS
                  MINOR CONSTRUCTION PROCEDURES
60


        Projects costing $100,000 or more but less than $750,000
         are funded through the Capital Investment Program (CIP)
         depreciation

        The upper limit is increased to $1,500,000 or less for
         projects impacting health, safety, or environment

        Projects in excess of $750,000 are funded with the Military
         Construction Appropriation (MCA)
                WCF CAPITAL INVESTMENT PROGRAM
61


        GOAL:
          To establish the capability for reinvestment to facilitate
           mid and long-term cost reduction
62
         WCF CAPITAL INVESTMENT PROGRAM OBJECTIVES
        Improve product/service quality and timeliness

        Reduce cost

        Foster competitive business operations
     WCF CAPITAL INVESTMENT PROGRAM POLICY
63

        Managers shall:
          Identify
          Prioritize
          Justify
          Budget for Capital Assets


      Only projects in President’s Budget financed through CIP
       (substitutes authorized when necessary)
      Capital assets funded through WCF capital budget
      Financed through WCF reimbursement rates or capital
       surcharge
     WCF CAPITAL INVESTMENT PROGRAM DEPRECIATION
64
                       CRITERIA
        Straight line method

            Less residual value if it exceeds 10% of the cost of the asset

        Commences on month following:

            Date of Receipt

            Date Asset Installed/ Ready for Use

        Equipment and minor construction projects in support of mobilization
         will not be depreciated
                              CASH MANAGEMENT
65


        A management tool designed to identify and control
         periods of high and low cash balances

        High cash balance:
          Bills   not paid
          Rates/surcharges    set too high
        Low cash balance:
          Buying    inventory in excess of needs
          Rates/surcharges    set too low
                     CASH MANAGEMENT – CONT’D
66


        Generating cash is dependent on:

            Rates that recover full costs to include prior year losses

            Accurate workload projections

            Meeting established operational goals
                    CASH MANAGEMENT – CONT’D
67


        Cash level criteria

            Dependent on accurate and timely data on cash levels
             and operational results

            Maintain 7 to 10 days operational cost and cash
             adequate to meet 6 months of capital disbursements
     CASH MANAGEMENT – NEGATIVE CASH BALANCE
68


        Caused by:

            Negative NOR

            Large CIP cash outlays

            Billing/reimbursement cycle lag

            Inventory increases
     INVENTORY MANAGEMENT - WHAT IS INVENTORY?
69


        Basically inventory is ...
                       INVENTORY MANAGEMENT
                          WHAT IS INVENTORY?
70


        Items that support production and customer service
            Raw Materials

            Work In Process

            Operating Supplies

            Finished Goods

            Spare Parts
            INVENTORY MANAGEMENT CONTROL
71

      Excessive inventories create unnecessary expenses for
         Handling
         Storage
         Spoilage
         Obsolescence and theft
      Inadequate inventory cause:
         Unsatisfactory service
         Purchase price disadvantage
         Excessive follow- Up cost
         Additional production cost
                      BASIC FINANCIAL STATEMENTS
72


        Statement of Financial Condition
            (Balance Sheet)

        Statement of Net Cost
            (Income Statement)

        Statement of Chance in Net Position
         STATEMENT OF FINANCIAL POSITION
 Also referred to as the Balance Sheet
   assets
     dollar amount of future economic benefits

      owned and managed by the agency
   liabilities
     dollar amounts owed by the agency

   net position (equity)
     the difference between assets and liabilities
              STATEMENT OF NET COSTS

 Also   referred to as:
     Statement of Operations
     Income statement
 Purpose
   intended to provide revenue and expense details
   reports results (net profit or net loss)
 Preparedon basis of general ledger 5000 and 6000
 account balances
      STATEMENT OF CHANGES IN NET POSITION

 Reports   the
     beginning net position
     effect of those transactions that caused the net position to
      change
     ending net position
 Preparedon the basis of the Statement of Net Costs
 and the “Financing Sources”
    STATEMENT OF CHANGES IN NET POSITION
   ITEMS THAT INCREASE NET             ITEMS THAT DECREASE NET
    POSITION                             POSITION

   Excess of revenue over cost         Excess of cost over revenue
   Legislative appropriations          Property provided to another
   Property obtained from another       agency for which no
    government agency for which          reimbursement is expected
    no reimbursed is required           Funds returned to the Treasury
                                        Appropriations returned
                             MANAGEMENT REVIEW
77

        Net Operating Result
           Measure of an activities revenues against expenses - equivalent to a
             commercial firms annual profit or loss
        Manhour Execution Rate
           Measures planned direct labor hours to actual - man-hour execution impacts
             on the revenue rate, expensing rate and the NOR
        Revenue Rate per Direct Labor Hour
           Rate charged to customers for a direct labor of production
        Expensing Rate per Direct Labor Hour
           Rate which costs are charged per direct labor hour
        NOR Formula
           Revenue rate - expensing rate x man-hours executed = NOR
               WCF SUBJECT TO ANTI-DEFICIENCY ACT
78



     Significant areas of operations that, if mismanaged, could result
     in a statutory violation of 31 USC.

        Section  1517, Title 31 of the US Code states that if a WCF
         over-obligates or over-expends dollars associated with its
         Capital Investment Program (CIP) approved budget, it
         violates this statute.
        WCFs must effectively manage their CIP to ensure that the
         current Investment Capitalization criteria is complied with
           WCF SUBJECT TO ANTI-DEFICIENCY ACT
79

     31USC Violations (continued):
       Per Section 1342, WCFs cannot accept voluntary services.
       Per Section 1341:
          Cannot create cash disbursements that exceed the total
            cash available.
          Misappropriation, Use of incorrect fund type.

       Per Section 1301, Augmentation - Funding expenses from
        one organization with those from another organization.
        WCFs need to have clear separation and
        agreements/ISSAs
            WCF SUBJECT TO ANTI-DEFICIENCY ACT
80



      31 USC Violations (continued):
        DOD 7000.14R, Financial Management Regulation (FMR), Volume
        14 also provides DOD Guidance wrt 31 USC violations.


     How   Serious?
             COs and Comptrollers have been terminated for
                        misappropriating funds.
                        WCF SUMMARY – ADVANTAGES
81

        Effectively relates resources and workload
            Identifies costs to do the job
            Customer pays for what they get
        Helps control costs
        Financial dependent on:
            Obtaining customer orders
            Balancing expenses and reimbursements
        Effective means to control overhead
            Move people to the workload
            Finance own inventory
        Freedom from appropriation cycle limitations
            Ability to carryover work
            CRA impacts minimized
                   WCF SUMMARY – DISADVANTAGES
82

        Non-WCF managers do not understand
        Perceived as too costly
        Rates fixed 2+ years out (crystal ball)
        Continued reliance on appropriation type reports and controls
        QUESTIONS?

?                    ?   ?

    ?
                     ?
                             83
Good Luck and Happy Trails

    John S. Reifsnyder
 johnreifsnyder@cox.net




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