LEAN ACCOUNTING

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LEAN ACCOUNTING

• CAPT Larry R. White, CMA, CFM, CPA, CGFM
• Commanding Officer, USCG Finance Center

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What is Lean Accounting?

• Lean Techniques should be applied to accounting
  processes.
• Managing measuring operations by financial
  accounting measures often produces bad decisions.
• Tradition accounting measures can impede
  implementation of lean in operations.
• Value Stream Focus

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Outline

• Lean in financial transaction processing.
• Understanding the Financial Accounting/Reporting
  Perspective
• If they wont understand you, maybe I can help
  you understand them..

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Lean Six Sigma atUSCG Finance Center

• Customers USCG, TSA, DNDO, DHS Purchase Card
• Transactions 2,000,000 Payments/5B
• Financial Reports 600/month
• Staffing 360 GS, 22 Military, 170 contractors.
• Second largest data center in CG.

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Impact to Date

• Backlogs/Work in Process 1 day or less
• 1 year ago 20 days or more
• Managing to daily inflow, not prompt pay deadline
• Redeploy 20 FTE, about 20 more likely
• Overtime 75 of prior year
• Most recently 20 of prior period

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Lean Concepts
FinCen Concepts

• Eliminate Waste
• Continuous Improvement
• Respect for People

• Get Control of the Work (1 day WIP)
• Improvement is everyones job, all the time
• Know what the customer values from your process
  better than they do and delight them!

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Implementing Lean

• Management Socialization
• Workforce Socialization
• Implementation
• Training
• Projects
• Management Structure Mechanisms
• Priorities

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Typical Weekly Lean Activities

• Daily Operations Meetings
• Backlog, Error Rates
• Team Process Improvement Meetings Tues Thurs
• Project Generation
• Weekly Status Meeting Project Follow-up
• LSS Program Meeting w/Blackbelts

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Real Benefits

• View Operations as a Production Process
• Accounting mindset to production mindset
• Focus on the process, not the person
• Performance Targets (Quality Efficiency)
• Improvement - Willingness to accept change
• Customer focus
• Respect for People
• Your work is important and management is
  interested.
• Its not all about the IT system.

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The Accounting Perspective
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Business Environment/Capital Markets
Regulators Auditors Analysts Investors Etc.
External Financial Reporting
Value Creating Operations Decision
Support, Planning, Control
Suppliers
Customers
Competitors
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Balance in the Accounting Profession

Management Accounting Decision Support,
Planning, Control over Value Creating Operations

Financial Reporting Oversight Preparing and
Auditing GAAP Financial Statements
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GAAP Financial Reporting

• Objective
• Information to present potential Investors
  Creditors in making resource allocation decisions
• Assess amounts, timing, uncertainty of future
  cash flows
• Not designed to show value of an entity
• Measured on Accrual Accounting basis
• GAAP is an economic modelinherently abstract
• Assess Stewardship Responsibility of Mgt
• Protect entitys economic resources
• Comply w/law, regulation, contractual provisions

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Characteristics of GAAP FR

• Relevance (to Investors Creditors)
• Predictive Confirmatory Value, Timeliness
• Faithful Representation (of real world economic
  phenomena)
• Verifiable (general consensus, not complete
  agreement, on representation measurement
  method)
• Neutral
• Complete
• Comparability (includes consistency)
• Understandability (to those with reasonable
  knowledge of FR with reasonably diligent study)
• Constraints Materiality, Benefits Costs (to
  investors creditors)

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Internal Control/SOX

• Internal Controls over Financial Reporting
• Process Maps
• Evidence Generated
• Controls Tested
• Internal Controls over Compliance w/Law
  Regulation
• Intern Controls over Operations
• Opportunity!!!!!

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IMA Cost Management Survey

• Cost Management is a key contributor to achieving
  strategic objectives.
• Need for actionable cost information a top
  priority
• Despite importance, cost information is often
  impaired

• Implementing new cost mgt tools systems is low
  to medium priority
• Traditional mgt accounting tools remain in wide
  use.
• Decision makers require clear, quantified value
  proposition for new tools.

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Strategic Tools for Management Accounting

• Activity Based Methods
• Target Costing
• Capacity Mgt
• Asset Mgt
• Process Mgt
• Extended Enterprise
• Lean Enterprise
• Theory of Constraints
• Process Based Financial Reporting

• Non-financial Performance Measurement
• Strategy Planning Execution
• Customer Lifetime Value
• Enterprise Risk Mgt
• Resource Consumption Accounting

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Accounting Problems with Lean Operational
Improvements

• Change creates complexity
• Accounting uses lots of estimates and changing
  them is a big deal
• People believe information fm the accountants,
  even when its silly old
• Depreciation and which machine makes a cheaper
  product
• Most decision making is on the margin, not full
  cost. (within the production value stream)
• Understanding the nature of cost is critical.
• Costs become more fixed less decision relevant
• Fixed costs/investment creates leverage
  capability
• Relevance or attributable (to an operational
  decision)
• Operational measures, not Financial, are the
  leading indicators of success.

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What is Lean Accounting?

• What I do at the Finance Center?
• Removing Financial Accounting/Reporting fictions
  from operational decision making?
• Focusing on financial information relevant to the
  production value stream.
• What problems does accounting and financial
  control create for you?