The Front End of the Property Management Life Cycle

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1 Cover Article by Steven F. Holland, CPPM FEDERAL NOVA Chapter PROPERTY ACCOUNTABILITY: THE FRONT END OF THE PROPERTY MANAGEMENT LIFE CYCLE by Steven F. Holland, CPPM NOVA Chapter Federal Property Accountability: The Front End of the Property Management Life Cycle As a Federal Property Manager, have you thought about the federal property accountability requirements from the front-end of the property management life cycle? This is a follow up to my previous article in The Property Professional on Federal Property Accountability: From the Law to the General Ledger. This article covers additional key aspects of federal property accountability. These aspects include acquisition, procurement, delivery, receiving, property identification and classification, records, and accounting. Please continue with me on the journey through federal property accountability as we explore the front-end of the property management life cycle. Front-End of the Property Management Life Cycle The front-end of the property management life cycle starts with acquisition and the determination of the need for property. Once the need is determined, planning is necessary to ensure all aspects of the acquisition are addressed so the property can be procured. When the property is received, accountability starts and the property management life cycle begins. So let s take the next step along the journey and explore the acquisition process. Acquisition Acquisition is the process of acquiring quality products to satisfy user needs with measurable improvements to mission capability and operational support in a timely manner and at a fair and reasonable price. An acquisition strategy is developed in the form of a roadmap that enables personnel to follow from program initiation through 8 The Property Professional Volume 24, Issue 6

2 post-production support. The strategy goals include minimizing time and cost of satisfying an identified need; linking program decisions to demonstrated accomplishments in development, system acquisition, initial production, testing and ultimately life cycle support; as well as tailoring the strategy to meet the specific needs of each individual program. Acquisition Planning Acquisition planning is the process where the efforts of all personnel responsible for an acquisition are coordinated and integrated into a comprehensive plan that fulfills the agency s needs in a timely manner at a fair and reasonable price. Acquisition planning begins as soon as the agency need is identified. The acquisition plan is a document that provides the overall strategy for accomplishing and managing an acquisition. It formally documents the approach in filling the need, optimizing resources, and satisfying the policy requirements for the acquisition. The acquisition plan should allow program management flexibility, but be specific enough to give approving officials sufficient technical and business related information to base their decisions. The acquisition plan should also provide sufficient information for someone not familiar with the program to understand what is being proposed. The acquisition plan needs to contain specific content covering the following two (2) key elements (ref: FAR 7.105(a)): Acquisition Background and Objectives The acquisition background and objectives provides the rationale and justification for the proposed acquisition. The elements involved are the statement of need, applicable conditions, costs, capability, performance, delivery, or performance period requirements, trade-off risks, and acquisition streamlining. Plan of Action A plan of action includes detailed information within multiple elements. The plan s elements include sources, competition, source-selection procedures, acquisition considerations, budgeting and funding, product or Figure 1. Acquisition Cycle service descriptions, priorities, allocations and allotments, contractor versus government performance, inherently governmental functions, management information requirements, make or buy, test and evaluation, logistics considerations, government-furnished property (GFP), government-furnished information, environmental and energy conservation objectives, security considerations, contract administration, federal laws, acquisition milestones, and the identification of participants in preparing the acquisition plan. After the plan is finalized, the acquisition proceeds through the acquisition cycle. 9

3 Acquisition Cycle The acquisition cycle includes thirteen milestones that must be met in order to achieve contract award. Figure 1 depicts each milestone this cycle. The key aspect of the acquisition cycle is receiving agency approval of the Acquisition Plan! Without approval of the plan (Milestone MS 1), the acquisition cannot proceed into Procurement. When approval is received, the Statement of Work (MS 2) is developed that includes several aspects like: Purpose, Scope of Work, Location of Work, Period of Performance, Deliverables Schedule, Applicable Standards, Acceptance Criteria, Special Requirements, Contract Type, Payment Schedule and Miscellaneous items. The purpose of the acquisition or project defines why the acquisition of a product or service is needed. The scope of work identifies in detail the work that must be completed, and the hardware and software involved. The location of work is where the work will be performed. The period of performance identifies when the work will be started and completed and can include a detailed project schedule. A schedule of deliverables what product (e.g., hardware, software, documentation etc.) is to be delivered to the Government, when and in what format. Standards are also identified in the SOW so the Contractor can ensure compliance. Objective acceptance criteria is defined so that both the Contractor and the Government can confirm if the product or work is acceptable. The type of contract is stipulated based on the requirements identified in the SOW and the risk to both parties. Depending on the contract type, a payment schedule progress payments may be a provision in order for the Government to pay the Contractor as work progresses. There are also miscellaneous or administrative items that arise that may be minor, and cannot be forgotten. One example is Government access to the Contractor s facility. This cannot be overlooked, especially if the Contractor is acquiring property to manufacture a product, or is provided a significant volume of GFP. Next, specifications (MS 3) are developed that define the requirements the product or service must include. Data requirements (MS 4) include technical reports, status reports, amongst other data or documentation requirements. These data requirements are normally called Contract Data Requirements List (CDRL) line items and are a provision of a contract. When all this documentation is in place, it comprises the acquisition package (MS 5). The requesting organization prepares a purchase requisition (MS 6) to initiate the requirement to procure the product or service. The requestor provides justification and obtains approval for procurements for other than full and open competition (MS 7). The Contract Specialist issues a synopsis of the procurement (MS 8) and the Contracting Officer issues a solicitation (MS 9) in the form of a Request for Proposal (RFP). The Contractor prepares their proposal in accordance with the specific instructions listed in the RFP and submits it before the date and time it is due. The Contracting Officer and designated staff evaluate the proposal (MS 10). After the evaluation is completed, negotiations begin (MS11). The negotiation process can be short or it can take several days. After negotiations are complete, the contract is prepared and reviewed by the Contract Specialist, and cleared by the Contracting Officer (MS 12). When the first 12 milestones are complete, the Contracting Officer makes the contract award (MS 13) to the successful offeror (e.g., Contractor)! The product or service is provided by the Contractor in accordance with the terms of the contract. Procurement Agency Acquisition Regulations Agency Acquisition Regulations are regulations whereby an Agency Head may issue to implement or supplement the Federal Acquisition Regulation (FAR). This can include agency policies and procedures, contract clauses, solicitation provisions, and forms governing the agency s contracting process or control the relationship between the agency and its prospective contractors. Agency Acquisition Regulations are published in the Federal Register as required by law. They are also codified with an assigned 10 The Property Professional Volume 24, Issue 6

4 Table 1. Agency Acquisition Regulations by Agency that Supplement the FAR chapter number in Title 48, Code of Federal Regulations. An agency s regulation that implements a specific part, subpart, section, or subsection of the FAR must be numbered and titled to correspond to the specific citation in the FAR. Agencies must not repeat, paraphrase, or restate material or include language that conflicts with the FAR. Agencies must comply with the FAR, except as required by law or provided by an authorized deviation (FAR Subpart 1.4, Deviations from the FAR). Agency Acquisition Regulations are assigned under Title 48 as listed in Table 1. Agency Acquisition Manual Agency Acquisition Manuals establish uniform internal operating acquisition procedures that implement or supplement the Federal Acquisition Regulation and that Agency Acquisition Regulation, and other statutory requirements. Each agency manual confirms to the numbering system prescribed by FAR Part Some Agency Acquisition Manuals are divided into subchapters: A) General; B) Competition and Acquisition Planning; C) Contracting Methods and Contract Types; D) Socioeconomic Programs; E) General Contracting Requirements; F) Special Categories of Contracting; G) Contract Management; H) Clauses and Forms; and I) Special Contracting Programs. Long established agencies have developed their manuals to conform to the outline of the FAR. Delivery The delivery is the point in which the vendor s carrier physically delivers the property to your receiving facility. Upon delivery, the carrier must obtain the receiving person s signature on behalf of the organization. Deliveries can be made in complete and partial shipments. A shipment is complete when all products are delivered by the vendor s carrier to the customer. A partial shipment is when only a portion of products are delivered. Partial shipments are made because one or more products are not ready for shipment by the vendor or are back-ordered. After a delivery of property is received it goes through an inspection process. Receiving Receiving is the process of accepting equipment, materials, or supplies in to an organization or facility where the organization s obligation, liability and accountability begin. This process starts when the contractor or vendor s delivery is received at the receiving facility and documentation 12 The Property Professional Volume 24, Issue 6

5 is created to establish physical custody and accountability. Documentation can include a vendor s packing list or invoice, carrier s freight bill, or commercial or government bills of lading or a DD Form 1149, Requisition and Invoice/Shipping Document. The receiving organization creates a receiving report to coincide with the vendor s packing list or shipping document. This documentation provides multiple organizations such as procurement, accounts payable, property management, supply chain management and transportation with information that property has been received. Accountability is established upon proof of receipt and a receiving record is created. Receiving documentation is valuable, because you demonstrate proof of receipt when you actually received the property into your organization s custody. Proof of receipt is critical for capitalized and donated property, because the receipt date affects your organization s general ledger and property tax reports. There are four critical steps in the receiving process are delivery, inspection and identification, documentation and internal routing and distribution: These steps are discussed more in detail below: Inspection The inspection process consists of four stages: 1) checking for any visual damage at delivery; 2) checking for any concealed or internal packagingrelated damage, 3) Any higherlevel inspection requirements for acceptance; and 4) affixing a property identification tag that identifies ownership of the property. Usually, Quality Assurance personnel perform the higher-level inspections especially when performance specifications must be verified before acceptance is official. If equipment is received and it fails acceptance testing, it must be returned to the vendor under the terms of the manufacturer s warranty. Documentation Complete documentation is essential in supporting the receiving process. When property is received, quantities, model and/or part number and serial numbers are matched against the vendor s shipping documentation or invoice. This matching process is called reconciliation, making sure what property was shipped against what property was received. Receiving reports are prepared after the reconciliation that clearly indicate the quantity and condition of the property Still using spreadsheets or barcodes to track your property? Don t miss the RFID train! Radio Frequency Identification Hop on board with Northern Apex s RFID Solution for Property Management. Benefits: Reduce time and labor inventorying & tracking assets Improve inventory accuracy Track and regulate asset maintenance and repairs Accurate and simple asset reconciliation sales@northernapex.com

6 at the time of receipt, as well as any discrepancies (e.g. overages, shortages, incorrect items, damaged items or misdirected shipments) noted during the receiving inspection process. Confirmation of Receipt to Procurement and Finance Receiving reports and vendor/carrier documentation are coupled and distributed to the Procurement, Accounts Payable, Property Management, and Inventory Control organizations so the vendor can be paid and internal records can be established. After the documentation is distributed, the property is routed internally and distributed to the requesting organization for use. Table 2. Sample Federal Property Record Data Elements Internal Routing and Distribution After property is received, inspected and accepted, it is routed and distributed internally to the requesting organization for use or placed in storage pending distribution. The internal routing and distribution process is normally quick, less than 24 hours, because the using organization is anxiously awaiting its arrival. Internal delivery documentation is generated by the Receiving organization to document the transfer of physical custody to the using organization. When the property is delivered to the using organization, the recipient must acknowledge acceptance by signing and dating the delivery documentation. Property Identification and Classification Property Management uses receiving reports and vendor documentation as source documentation to establish property records and the start of life cycle for tagged accountable property in the Property Management System. Records It is essential that property records be established in an Agency s Property Management System promptly upon receipt and identification of the property. This is the first step that establishes accountability of the asset and ties it to the Agency s general ledger. Table 2 lists sample data elements that a federal property record may include. All general Property, Plant and Equipment (PP&E) must be recorded at acquisition cost. The acquisition cost shall include all costs incurred to bring the PPE to a form and location that is suitable for its intended use. The acquisition cost in acquiring PP&E includes, but is not limited to the following cost elements: Acquisition cost paid to the supplier; Transportation charges; Handling and storage costs; Labor and direct or indirect production costs for assets manufactured or constructed; and Installation costs. 14 The Property Professional Volume 24, Issue 6

7 Table 3. Sample Personal Property Capitalization Thresholds must consider their financial and operational conditions and the assets life expectancy in establishing an appropriate capitalization threshold. The life expectancy or useful life of an asset is defined by the estimated number of years the asset is expected to be useful. The life of an asset is affected by factors like physical wear and tear and obsolescence. Agency established capitalization thresholds must be consistently applied across all agency organizations. Capitalization thresholds are established for the following types of, but not limited to, personal property. Table 3 identifies sample personal property capitalization thresholds. Once capitalization thresholds for personal property are developed they set the bar for when capitalized property is depreciated. Acquisition costs support the accounting process where official property and financial records are established and maintained. Accounting Accounting involves the bookkeeping methods in recording and maintaining the property and financial transactions within a business in order to support an agency s financial statements. The Chief Financial Officer (CFO) for each agency is responsible for the financial accountability for all PP&E and must sign a Statement of Assurance ensuring the accuracy of the financial records and the agency has a clean audit opinion. These requirements are driven by the CFO Act of Agency financial accountability for PP&E includes the accounting treatment of establishing capitalization thresholds for all types of PP&E on record within the agency. This brings us to the topic of capitalization as we progress on our journey. Capitalization Capitalization thresholds for PP&E are established by federal agencies rather than by the Federal Accounting Standards Advisory Board (FASAB). The reason for this is that federal agencies are diverse in size and volume and have a wide range of acquisition costs. Agencies Depreciation PP&E is depreciated over its useful life using the straightline method with no salvage value. Any improvement made to a capitalized asset, the cost of a single improvement must be at least $50, An improvement that extends the useful life of the original asset, or significantly enhances, improves capacity or mission capability of the asset must be capitalized and depreciated according to the useful life of the improvement. The cost of the improvement is added to the Net Book Value (NBV) of the original asset and is depreciated over the adjusted estimated remaining 15

8 Table 4. PP&E Categories useful life of the asset. The Statement of Federal Financial Accounting Standards (SFFAS) prescribes policy that governs the accountability and financial reporting of personal property for a federal agency. categories of PP&E defined by this standard. 1 GAO, Financial Statements of the United States Government for the Years Ended September 30, 2011, and 2010, p45, gov/financial/fy2011/11stmt.pdf Statement of Federal Financial Accounting Standard #6 - Property, Plant and Equipment (PP&E) The Statement of Federal Financial Accounting Concepts No.1, defines four reporting objectives for PP&E: 1) Budgetary Integrity; 2) Operating Performance; 3) Stewardship; and 4) Systems and Control. PP&E is defined as tangible assets that have an estimated useful life of two years or more, are not intended for sale in the ordinary course of agency operations, and have been acquired or constructed with the intention of being used, or being available for use by the agency. PP&E includes internally use software as well as property acquired under a capital lease. PP&E excludes consumable and expendable items such as operating materials and supplies. The Federal Government s investment in PP&E exceeds $852 billion dollars1 and it is used for varied purposes and missions. Table 4 lists the multiple The Property Professional Volume 24, Issue 6 cor Within these reporting objectives, the Property Management organization plays a role in stewardship. It reports information on asset condition of PP&E, changes in quantity or service, cost of PP&E, and acquisition of capitalized PP&E versus acquisition of non-capital PP&E. The systems and controls within federal financial account concepts lead to controls and classification of funds. Funds are uniformly classified through a codification process using Object Classes and Sub-Object Classes in described in OMB Circular A-11. Object Classes OMB Circular A-11 defines object class codes are uniform classifications that identify financial transactions and obligations of the Federal Government by the nature of the goods or services purchased (e.g. supplies, goods, materials or equipment) without regard to the agency involved or the purpose of the programs for which they are used. There are five major object classes within the classification system: 10 Personnel compensation and benefits; 20 Contractual services and supplies; 30 Acquisition of assets; 40 Grants and fixed charges; and 90 Other. Object classes define obligations according to their initial purpose. Obligations are recorded when the Federal Government places an order for a supply (asset) or service by awarding a contract. Object

9 Table 5. Sample Sub-Object Class Codes and Descriptions class information must be reported because 31 U.S.C. 1104(b) requires the President s Budget to present obligations by object class for each account. An object class is one of four types of classification systems within the Federal Government. The remaining three types of classification systems include Program Activity, Functional Class, and Character Class. Object classifications can be found in Section 83 Object Classification (MAX Schedule O) within OMB Circular A-11. The key major object class that federal property managers need to be concerned with is object class 30, Acquisition of Assets. The following three object class categories that further define assets and they are: 31.0 Equipment 32.0 Land and structures 33.0 Investments and loans 18 The Property Professional Volume 24, Issue 6 19 cor Within this series, as Property Managers we need to concern ourselves with object class 31 Equipment, because equipment purchased is one element of PP&E. Agencies can further define procurements of equipment by using sub-object class codes. Sub-Object Classes Sub-object class codes are defined by each agency in accordance with the object class categories defined by OMB Circular A-11, Section 83. Agencies define sub-object class codes for accounting purposes. Sub-object class codes are essential to the agency s central accounting system and they must be entered for every financial transaction. Sub-object class codes are defined with two additional digits. These digits further identify specific groups of objects that are derived from the types of property an agency procures. Table 5 identifies sample subobject class codes and their code descriptions. Object and sub-object classes are defined in the agency s Accounting Classification Code Structure (ACCS) in Figure 2. The ACCS is tied into the agency s financial system (e.g. Federal Financial Management System (FFMS)) and U.S. Standard General Ledger. Property-related object class and sub-object class codes contained in the ACCS directly relate to the agencies standard general ledger through the financial management and accounting process. It is extremely important for Federal Property Managers to work closely with their Federal Financial Managers to ensure that both Property and Financial records exist, and are complete and accurate. When

10 Figure 2. Accounting Classification Code Structure both Property Management and Financial Management professionals work together, it makes a great team. The team ultimately ensures the CFO that the financial statement and general ledger are accurate and can achieve a clean audit opinion. Conclusion In closing, there are many aspects involved in federal property accountability. The determination of the need for property initiates the acquisition planning and procurement processes. Agencies can develop supplemental regulations to the FAR as long as they do not repeat, paraphrase, or restate material or include language that conflicts with the FAR. When products or services are purchased by an Agency, they must be received, inspected, identified to Agency ownership (e.g. property tagged), recorded in an Asset Management system of record and categorized based on the type and unit acquisition cost of property procured. All property exceeding an Agency capitalization threshold is categorized as capitalized PP&E and is depreciated when placed into service. All PP&E is accounted for in accordance with SFFAS #6 in the Asset Management system with capitalized PP&E also being recorded in the Agency Financial System. Capitalized PP&E is recorded in the Agency Financial System under its applicable U.S. Standard General Ledger account. The existence and completeness of Agency property records directly relate to the accuracy of the Agency s financial records. Both Property and Financial Management professionals must work together as a team to ensure the Agency achieves a clean audit opinion relative to Property and Financial Management and the Agency s financial statement is accurate every fiscal year. When we recognize the frontend aspects of the property management life cycle, we can foster and improve federal property accountability. Thank you for joining me on this journey. This article is written in memory of Andrew C. The Oyster Anderson. Andy was a dear friend, second Dad, an educator, mentor, patriot and a true gentleman. God bless you, Andy. n Biography Steven Holland a member of the Booz Allen Hamilton staff in McLean, Virginia. He has 33 years of experience in Asset and Logistics Management as a contractor employee and consultant. Steve has supported several federal logistics and asset management projects for the Department of Homeland Security, Environmental Protection Agency, and the Intelligence Community. His subject matter expertise and implementation of industry leading best practices have led to results that endure. Steve s education includes a Bachelor of Business Administration with concentration in Acquisition and Contract Management with honors from Strayer University, and holds NPMA CPPS, CPPA, and CPPM certifications. He has been a member of NPMA since 1988 and is a member of the NOVA Chapter. He also serves as Co-Director of the NPMA Conference Series Planning Committee. Back to Table of Contents