Military Equipment Valuation

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Military Equipment Valuation
Society of Logistics Engineers Southern Maryland
Mark E. Hogenmilller Office of the Under
Secretary of Defense (Acquisition, Technology and
Logistics) Property Equipment Policy
Office November 30, 2006
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Presentation Roadmap

• What Is Military Equipment Valuation (MEV)?
• Why Is Military Equipment Valuation Necessary?
• What was the Initial Goal and Required Actions?
• How Do We Move Forward?
• How Does IUID and Other Efforts Support MEV?

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MEV Defined

• MEV is an effort to implement the 2003 Federal
  Accounting Standard that requires military
  equipment (including modifications and upgrades)
  to be valued, capitalized, depreciated, properly
  accounted for, and reported on the Departments
  financial statements

Slide 3
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Military Equipment Definition

• Military Equipment is defined as Tangible assets
  that
• Have an estimated useful life of 2 or more years
• Are not intended for sale
• Does not ordinarily lose its identity or become a
  component part of another article, and
• Are intended to be used or available for use in
  the performance of military missions
• Examples include combat aircraft, pods, combat
  ships, support ships, satellites, and combat
  vehicles

Slide 4
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Asset Taxonomy
PPEProperty, Plant and Equipment OMSOperating
Material and Supplies
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Better Information

• MEV will provide more reliable and more accurate
  information to decision makers
• Total acquisition cost of assets will be
  consistently determined
• Decision makers will get comparable information
  over time and between programs
• It will allow better investment planning for
  replacements

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Public Trust

• MEV will reinforce public trust and confidence in
  our ability to allocate mission funding
• Public Perception matters because taxpayers fund
  our infrastructure
• A good perception leads to public confidence in
  our ability to protect the nation
• Public confidence leads to trust that we are
  using taxpayer money prudently
• We owe the taxpayers no less than a private
  company would to its investors in being able to
  account for their money. Linda M. Springer, OMB

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Its the Law

• MEV allows us to comply with the Chief Financial
  Officers Act of 1990
• Not later than March 31 of 1992 and each year
  thereafter, the head of each executive agency
  shall prepare and submit to the Director of the
  Office of Management and Budget a financial
  statement for the preceding fiscal year .
  (Pub.L. 101-576, Section 303(a))

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Its the Law (cont.)

• MEV also allows us to comply with the Federal
  Financial Management Improvement Act of 1996
• Each agency shall implement and maintain
  financial management systems that comply
  substantially with Federal financial management
  systems requirements, applicable Federal
  accounting standards, and the United States
  Government Standard General Ledger at the
  transaction level. (Pub. L. 104-208, Section
  803(a))

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Federal Accounting Standards

• MEV complies with Statement of Federal Financial
  Accounting Standards (SFFAS) applicable to
  Military Equipment
• SFFAS No. 6 Accounting for Property, Plant, and
  Equipment June 1996
• Accounting standards for Federally owned
  property, plant, and equipment
• National Defense Property, Plant, and Equipment
  (ND PPE) excluded (Military Equipment)
• These assets are developed, used, and retired
  in a manner that does not lend itself to
  systematic and rational assignment of costs to
  accounting periods (i.e., depreciation
  accounting) and, ultimately, to outputs.

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Federal Accounting Standards (cont.)

• SFFAS No. 23 Eliminating the Category National
  Defense Property, Plant, and Equipment May 2003
• Rescind the term ND PPE
• Classify all assets previously considered ND PPE
  as general PPE
• The provisions of Standard No. 6 now apply to
  Military Equipment

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Initial Goal of MEV
Establish an auditable Military Equipment
Baseline by end of FY06
Slide 12
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Required Actions

• Establish Polices, Procedures, and Guidance
• Standardize the valuation and accounting
  treatment for military equipment
• Complete Initial Valuations of Military Equipment
  
• 600 military equipment acquisition programs
• Deploy System Capability
• Maintain and update values

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Completed Actions

• Developed ten principle-based business rules and
  valuation methodology for military equipment
• A collaborative effort between the PE Policy
  Office, Military Departments, applicable Defense
  Agencies, and Office of the Under Secretary of
  Defense (Comptroller) (OUSD (C))
• Standardize valuation process by determining the
  accounting treatments for military equipment
  assets

Slide 14
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Completed Actions (cont.)

• Completed Initial Review of approximately 1,100
  Military Equipment Programs
• Received assistance from Program Management
  Offices
• Identified initial military equipment program
  listings
• Determined if program should be valued or issued
  a permanent or temporary waiver

Slide 15
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Completed Actions (cont.)

• Established a historical cost baseline of 600
  actively procuring DoD major weapons systems
  (9/30/06)
• Includes Army, Navy, AF, SOCOM, ChemBio, and MDA
• Represents several thousand major end items worth
  an estimated 600 billion of military equipment
  owned and operated by the DoD
• Using a program-based methodology where average
  end item cost is based on program expenditures,
  budgetary data, and asset quantities (as
  permitted by SFFAS No. 23)

Slide 16
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Completed Actions (cont.)

• Developed and deployed Capital Asset Management
  System (CAMS-ME), an enterprise-wide capability
  to perform Financial Asset Accounting
• Values, capitalizes, and depreciates delivered
  assets
• Captures asset additions, transfers, and
  retirement data
• Captures expenditures by program from accounting
  systems via DFAS Business Enterprise Information
  Services (BEIS) System
• Reports financial and management data

Slide 17
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Completed Actions (cont.)

• Developed a Management Assertion and audit
  readiness process to handle the uniqueness of
  military equipment for making the values audit
  ready
• Management Assertion is a formal statement
  provided by the financial head of a Component
  stating that the initial military equipment
  program values are ready for audit
• It is supported by a system of internal controls
  that demonstrates that the data DoD has collected
  support the program values that are being reported

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The Department of Defense will assert to 5 things

• Valuation (OUSD ATL PE Policy Office)
• That the items have been valued in accordance
  with Federal Accounting Standards or Generally
  Acceptable Accounting Standards
• Completeness (Component Acquisition)
• Regarding the PPE line item on the balance
  sheet, that everything that should be reported
  has been recorded and reported
• Rights and Obligations (Component Acquisition)
• That the Component reporting the item does in
  fact have the rights and owns the equipment
• Existence (Component Acquisition and/or
  Logistics)
• That the military equipment reported by the DoD
  does in fact exist and there is physical evidence
  of its existence
• Presentation and Disclosure (Component Financial
  Management)
• That the information is presented accurately on
  the financial statement

Slide 19
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The Department of Defense will assert to 5 things

• Valuation (OUSD ATL PE Policy Office)
• That the items have been valued in accordance
  with Federal Accounting Standards or Generally
  Acceptable Accounting Standards
• Completeness (Component Acquisition)
• Regarding the PPE line item on the balance
  sheet, that everything that should be reported
  has been recorded and reported
• Rights and Obligations (Component Acquisition)
• That the Component reporting the item does in
  fact have the rights and owns the equipment
• Existence (Component Acquisition and/or
  Logistics)
• That the military equipment reported by the DoD
  does in fact exist and there is physical evidence
  of its existence
• Presentation and Disclosure (Component Financial
  Management)
• That the information is presented accurately on
  the financial statement

Slide 20
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Moving Forward

• In order to move to full compliance with Standard
  6 we need move away from program based
  valuations to obtain a more detailed value
• Full cost asset valuation
• Asset value includes the cost of embedded GFP
• Capability to identify and capitalize
  modification costs
• Granular cost asset valuation
• Asset costs exclude the cost of expensed items
  and other capital assets (e.g., support
  equipment)
• Identify and track each asset
• Better visibility by item (Group and composite is
  not allowed)
• To be Fully automated

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IUID Other Efforts Support MEV

• Increased System Capabilities
• Business Enterprise Information Services (BEIS)
• DFAS data warehouse--automates program / end item
  expenditure updates
• Wide Area Work Flow (WAWF)
• Automates receipt and acceptance
• Automates the tying of GFM cost to an end item in
  the military equipment valuation process
• IUID Registry information will be provided to
  CAMS-ME for military equipment

Slide 22
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IUID Other Efforts Support MEV (Cont.)

• Services Accountability Systems
• Automates the update of end item additions,
  transfers, and disposals
• Provides information to the IUID Registry
• IUID Registry provides information to CAMS-ME
• IUID Registry will provide the audit trail of
  property in accountability systems

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Embedded Elements

• APUID Acquisition Program UID
• Ties Expenditures to Acquisition Program and
  identifies Appropriate Work In Process (WIP)
  Account
• Asset Type
• Identifies Military Equipment as appropriate
• IUID Item UID
• Provides relationship to delivered Military
  Equipment Items
• Relieving of WIP
• Establishment of Fixed Asset and Deprecation
• Identifies embedded Government Furnished Material
  (GFM)

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General questions and info
The MEVA website http//www.acq.osd.mil/me/
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• Backup Slides

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CAMS-ME Increment 1
Increment 1 (Avg. Cost System SFFAS 23
Compliant)
Portal
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CAMS-ME Increment 2
APUID Registry
Expenditure data
DUID Registry
BEIS
Program Data
Asset Type
Financial Reporting
CAMS-ME
DDRS
Work in Process (WIP)
IUID Registry
WAWF
Valuation Data Acquisition Cost / GFM
Military Equipment Valuation (MEV)
DUID/APUID Filter
Asset Data Placed in Service Transfers/Retirements
/Losses
Fixed Asset Accounting (FAA)