DEFENSE WORKING CAPITAL FUND PRESENTED BY: PAUL J. DOMINICK, CDFM GRADUATE SCHOOL INSTRUCTOR PDI

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P

J. D

,

CDFM

[email protected]

DEFENSE WORKING CAPITAL FUND

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| Passing Of The National Security Actg y

| Established The Office Of The Secretary Of Defense And

The Department Of The Air Force

| Created Comptroller Positions With Overall Responsibility

For Financial Systems

| Business /Commercial Type Activities Of The Military

Departments Be Financed By Revolving Or Working Capital F d

DEFENSE WORKING CAPITAL FUND

AUTHORIZING LEGISLATION

AUTHORIZING LEGISLATION

| Public Law 216 - 81st Congressg | 10 USC 2208

| DOD Di ti 7410 4 | DOD Directive 7410.4 | FMR 7000.14R

y The law authorized working capital funds to provide financing of

industrial-commercial type activities, and to effectively control cost of programs and work performed

DEFENSE WORKING CAPITAL FUND

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| Working Capital Used To Finance Operations From Time Specific Work Is Begun To The Time That Payment Is Received From The Work Is Begun To The Time That Payment Is Received From The Customer

DEFENSE WORKING CAPITAL FUND ELIGIBILITY | Buyer-seller Relationship Exists

DEFENSE WORKING CAPITAL FUND

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| Signed By The Secretary Of Each Service With Approval By Assistant S t Of D f (C t ll )

Secretary Of Defense (Comptroller) | Name And Location Of The Activity

| Operating Agenc Responsible For Managing The Acti it | Operating Agency Responsible For Managing The Activity

| Description Of Function And Type Of Products/Services Offered | Statement Of Exceptions

| Statement Of Exceptions | Estimated Working Capital | Inventory Investments

| Inventory Investments

| Estimated Volume Of Business

| Others Within DOD Agencies Authorized To Provide Services To The Activity

DEFENSE WORKING CAPITAL FUND

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| CRITERIA REQUIRED TO BE INCLUDED IN THE DWCF

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FINANCIAL STRUCTURE:

y Outputs (goods and services produced) can be identified y Approved accounting system is available

y Customers identify products /services required y Customers identify products /services required

y Advantages/disadvantages of establishing buyer-seller

can be evaluated can be evaluated

DEFENSE WORKING CAPITAL FUND

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ORDERS PAY BILL FOR COSTS/ CONGRESS APPROPRIATED REVOLVING FUNDS WORKING CAPITAL $$ SERVICES APPROPRIATED $ WORKING CAPITAL AT FUND INCEPTION

FINANCES COST OF PERFORMING WORK

LABOR COSTS DIRECT MATERIAL PRODUCTION OVERHEAD

GENERAL & ADMINISTRATIVE

DEFENSE WORKING CAPITAL FUND

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| Army Working Capital Fundy g p | Navy Working Capital Fund

| Ai F W ki C it l F d | Air Force Working Capital Fund | Defense Working Capital Fund

DEFENSE WORKING CAPITAL FUND

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| Control Costs Of Goods And Services Produced

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| Provide Effective And Flexible Means For Financing, Budgeting, And Accounting For Costs

| Provide Managers Financial Authority And Flexibility to Procure And Use Manpower, Materials, And Other Resources Effectively

| Facilitate Budget And Reporting For The Cost Of Products | Facilitate Budget And Reporting For The Cost Of Products

| Encourage Managers And Employees To Provide Quality Products And Services At The Lowest Cost

DEFENSE WORKING CAPITAL FUND

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| Furnish Managers Modern Management Tools Comparable To Private

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Enterprise

| Improve Cost Estimating And Cost Control

| Encourage Providers To Coordinate Labor Forces And Inventories With Workload, Budgeting And Cost Control

C t E l t P h P i A d Q lit Of G d A d | Customers Evaluate Purchase Prices And Quality Of Goods And

Services Ordered

| Establish Standard Prices, Stabilized Rates And Unit Prices For Goods , And Services

DEFENSE WORKING CAPITAL FUND

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| MUST PRODUCE

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y Quality product y On Time

y At least possible cost y At least possible cost

| BUYER-SELLER RELATIONSHIP

y Customers pay for what they receive

y Production dependent upon customer orders y Must remain competitive

| OPERATES ON A PROFIT/LOSS | HAS ITS OWN INVENTORY

| PURCHASES AND DEPRECIATES CAPITAL EQUIPMENT

WORKING CAPITAL ORIGINALLY PROVIDED BY CONGRESS WORKING CAPITAL ORIGINALLY PROVIDED BY CONGRESS

DEFENSE WORKING CAPITAL FUND

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| FY 2013 it is estimated The Five Funds Employ 185,400 Civilians And 16,500 Military Personnel

| Generate Approximately $128 Billion In FY 2013 Estimated Obligations | Finance Operations Without Fiscal Year Limitation

| Sell Goods To “Customers”

| Use Income To Replace Or Buy Inventory And Finance The Production Of Goods And Services

DWCF

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FY 2013 P

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FY 2011 ACTUAL FY 2012 EST. FY 2013 EST. DWCF Program Obligations (Dollars in Billions)

DWCF Program Obligations (Dollars in Billions)

Army 14.9 14.6 13.6 Navy 28.8 28.9 28.6 Air Force 25 9 26 8 25 8 Air Force 25.9 26.8 25.8 Defense-wide _{54.2 54.6 52.6} Defense Commissary 7.4 7.4 7.4 Total DWCF OA 131.2 132.3 128.0 1

DEFENSE WORKING CAPITAL FUND

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| COMMISSARIES (DECA)

Pre - WCF

( )

| DEPOT MAINTENANCE (ARMY, NAVY, AF)

| DISTRIBUTION DEPOTS (DLA & NAVY) | FINANCIAL OPERATIONS (DFAS)

Stock Funds

| FINANCIAL OPERATIONS (DFAS)

| INDUSTRIAL PLANT EQUIPMENT (DLA) | INFORMATION SERVICES (NAVY & DISA) | LOGISTICS SUPPORT ACTIVITIES (NAVY)

DWCF

DWCF

Industrial Funds

( ) | PRINTING & PUBLICATION SERVICES

(DLA)

| PUBLIC WORKS (NAVY)

| REUTILIZATION & MARKETING SERVICE

Support Services_ServicesSupport

| REUTILIZATION & MARKETING SERVICE (DLA)

| RESEARCH & DEVELOPMENT (NAVY) | SUPPLY MANAGEMENT (ARMY, NAVY,

AF DLA) AF, DLA)

DEFENSE WORKING CAPITAL FUND

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y Buys and maintains assigned stocks of materiel for sale to its customers,

primarily army operating units

| DEPOT MAINTENANCE *

y Maintains end items and depot-level reparables

y Provides organic industrial capability to repair, overhaul, and upgrade

weapons systems and equipment

| INFORMATION SERVICES

| Provide for the development and operational sustainment of automated

information and communications systems

| *ARMY WORKING CAPITAL FUND - INDUSTRIAL OPERATIONS

y Maintains end items and depot-level reparables and manufactures,

renovates, stores and demilitarizes munitions for all services within DoD and f f i ilit t

DEFENSE WORKING CAPITAL FUND

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| 1947 - NATIONAL SECURITY ACT OF 1947 ESTABLISHED REVOLVING FUNDS

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| 1950’S AND 1960’S

y Stock Fund y Industrial Fund

| 1980’S - IMPROVED PRODUCT COST IDENTIFICATION

| 1981-1985 - NAVY CEASED FREE ISSUE OF DEPOT LEVEL REPARABLES (DLRS)

y Moved financing to the Stock FundMoved financing to the Stock Fund

| 1983 - ASSET CAPITALIZATION PROGRAM (NOW THE CIP)

| 1991 - ARMY/AIR FORCE MOVED DLR FINANCING TO THE STOCK FUND | 1991 - MILITARY PERSONNEL COSTS WERE ADDED

| 1991 - MILITARY PERSONNEL COSTS WERE ADDED | 1992 - DBOF ESTABLISHED

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S

Th i i i di fi bili | The mission is readiness – not profitability

y Achieve the readiness standards of the Service

y Keep the industrial base warm for when it’s needed

| Cover the cost of operations

| So we are in a business … but we have to do things no business would ever do

Not Like a business

ƒ You’re setting your rates/prices 18-24 months ahead of the year they’ll be used or sold

Like a business

ƒ Customer-Provider relationship

they ll be used or sold

ƒ The prices and rates are locked during the year of execution

ƒ You can be told to return profit

ƒ The politics and the political

ƒ The provider MUST be aware of the operating costs involved

ƒ The provider has to cover those costs

ƒ The provider must be responsive or it p p

oversight are much more intense than the commercial counterpart

– Congress

– Local Communities

ƒ As the government’s organic

p p

won’t be competitive

ƒ In some cases, the customers CAN go elsewhere

ƒ There’s no “guaranteed” business g g

base, you can/sometimes must operate at far less than your capacity

There s no guaranteed business

ƒ The “business” depends on the customers’ funds for operating cash

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| Our business plan is our Operating budget

| Implied Task: Better be involved when your RM builds your budget

| What’s in a business plan? | What s in a business plan?

y Past sales

y Past industrial orders y Cost of your sales

You have these numbers and

You should know them

Cost of your sales

y Cost of your industrial orders y Anticipated sales

y Anticipated industrial orders

know them

y Anticipated industrial orders

y The current and future environment

This is the business art. Work this hard &

you can get close

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| Break even over time (non-profit)

y For every profit $ you make, you’ve reduced the

appropriated customer’s buying power

P fit i li f il t l t i t

|Profit implies failure to properly cost requirements |You return profit through lower rates

y For every loss $ you’ve misjudged your costs y For every loss $, you ve misjudged your costs

|Losses imply failure to understand costs

|You cover losses through higher rates g g _O

| Full Cost Visibility | Full Cost Recovery

Expenses Revenues

BUSINESS PLAN

| Based on performance metrics

| Driven by readiness, not profit goal | Budget is our business plan!

| We have two budgets

y Operating y Capital

Operating Budget Considerations

ƒ What do your customers need?

– Are you in touch with them?

Capital Budget Considerations

ƒ Does it strike a balance between refreshing your tech base and what it’s going to cost in

– Do you know missions and mission changes?

– You’re building your POM on their needs I th b d t l t d t th i i t ?

your rates?

ƒ Is it related to your vision of the future? ƒ Can you quantify the efficiency that gives a

payback on investment?

– Is the budget related to their requirements? ƒ Do you know how your enterprise is running ? ƒ Are your metrics budget related?

paybac o es e ?

ƒ There ought to be a point where you can identify and realize your ROI

– Is your budget tied to where you’re going? ƒ It takes active internal and external

communications to succeed at both!

If it ain’t in your budget, it ain’t!

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| DWCF business entities operate on a break-even basis

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| Customer prices and rates are established on an end product basis

| Prices and rates are established during the budget process at g g p levels estimated to recoup:

- budgeted cost of goods and services provided - prior period gains and losses

ll d h f it l t

- as well as approved surcharges for capital asset acquisition

| Budget process is the mechanism use to ensure adequate resources are budgeted in the customer’s appropriated fund 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

POLICY

DOD FINANCIAL MANAGEMENT REGULATION 7000.14-R

| Volume 11B, Chapter 1

y Rates are required to be established at levels estimated to Rates are required to be established at levels estimated to _{| Full Cost Recovery}

recover, over the long term, the cost of products or services to be provided, as well as approved surcharges.

y Gains or losses in operations may occur as a result of variations

| -- Full Cost Recovery

| Current year gains/losses

y Gains or losses in operations may occur as a result of variations

in program execution. Realized gains and losses generally are reflected in offsetting adjustments to stabilized rates established in subsequent fiscal years

| --Current year gains/losses

will be accommodated through the rate process— 2 years out!

| Volume 2B, Chapter 9

y Managers of activity groups within the Fund are required to set

their prices based upon full cost recovery, including all general and administrative support provided by others

| --Within an installation’s

rate will be expenses beyond its control.

and administrative support provided by others.

y Prices are established through the budget process and (except for

the Depot Maintenance, Central Design Agent Activity Groups, and United States Transportation Command) remain fixed during the

| --Stabilized rates can be

adjusted during year of execution, if activity group is +/- $10M NOR

STABILIZED RATE CONCEPT EXCLUSIONS

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MPACT OF

PBD* 406

DTD

1 D

EC

2003

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MPACT OF

PBD 406,

DTD

1 D

EC

2003

|

Army RESET program

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y S

p og a

- Repair of war-damaged equipment, will be performed

on a cost reimbursable basis, to include a portion of

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overhead, are recovered (assumption- asset condition is

unknown)

* Now called Resource Management Decision (RMD)

* Now called Resource Management Decision (RMD)

THREE COMPONENTS OF RESET

| Replacement - The purchase of new equipment to replace battle losses,

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worn out or obsolete equipment, and critical equipment deployed and left in theater, but needed for homeland defense, homeland security and other

critical missions

| Recapitalization- A rebuild effort that extends the equipment’s useful life

by returning it to a near “zero mile/zero hour” condition with either the original performance specifications or with upgraded performance

specifications

| Repair - A repair or overhaul effort that returns the equipment’s condition

to the Army standard It includes the Special Technical Inspection and Repair to the Army standard. It includes the Special Technical Inspection and Repair Program of aircraft.

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EIMBURSEMENT

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ROJECT

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RDERS

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EIMBURSEMENT

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ROJECT

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RDERS

| Performing activity will notify the ordering activity promptly

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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 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. estimated cost.

DEFENSE WORKING CAPITAL FUND

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| THE PURCHASER OF SUPPORT SERVICES:

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y Determines requirements

y Requests funding through the budget processRequests funding through the budget process

DEFENSE WORKING CAPITAL FUND

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| The Provider Is The Support Activity That Produces Goods

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pp y

Or Provides Services:

y Satisfy customer requirements

y Provides best performance at lowest cost y Use unit cost as a tool

DWCF B

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DWCF B

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| Non-DOD Federal Government Agencies | Private Parties And Concerns:

y Foreign Governments

y State And Local Governments

y Us Manufacturers Assemblers Or Developers Authorized y Us Manufacturers, Assemblers, Or Developers Authorized

By DOD

| Customer Orders Finance The DWCF | Customer Orders Finance The DWCF

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| Customers Determine And Justify Anticipated Requirements From The DWCF B i A

DWCF Business Area

| Financial Resources To Purchase Business Area Products Are Identified In Budget Requests

| Budget Documents Developed Using Projected DWCF Rates And Prices | Customer Orders Provide The Resources To Finance DWCF Business

Areas

| Customers Need To Submit Accurate Budget Requests

| Inaccurate Budgets Result In Insufficient Appropriated Resources | Results In Oversized DWCF Business Areas (Personnel,

Overhead, Material, Operating And Capital Budgets)

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

Turns in reparable and

orders new stock Supply

Management

Ships Depot Level Reparable (DLR) to Depot Maintenance

Management

D t

1 2

Transportation _MaintenanceDepot

3 4

Customer

Distribution Depot

Stores DLR for eventual delivery to customer

Repairs DLR and ships to Distribution Depot

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O O WORKLOAD

(DLH) FIXED

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&

Direct Labor Hours (New Orders

The Operating Budget

Estimate of revenue & expenses Direct Labor Hour Rate

Submitted as the

The WCF

Theory: Workload

Drives… The Rate Process_{(Submits for a}

+ Carry in Budget Estimate Submission (BES)

Cash Balance

Everything (Submits for a _{DL rate)}

Rate Approved in PBD/RMD 426 The Pricing Process Individual items/projects Billing And _{items/projects} Execution Process Collections

Prices published for customers

ƒProduce Products

ƒRevenues & Expenses

W

’

? (D

)

A rate has three components: | Direct Costs

y Direct Labor – welder y Direct Materiel – engines

A rate has three components:

y Direct Materiel – engines

y Direct Other – TDY, Contract Services

| Indirect (Overhead)

y Mission (Production Overhead)Mission (Production Overhead) | Within Shop– supervisor | Above Shop– director y Non Mission

| BOCIE – janitor

| G&A – activity commander

| AOR Recovery

W

HAT IS

(AOR)?

H

OW YOU RETURN PROFIT OR LOSS

| Remember the DWCF goal is to break even?

y Why break even? Because you want just enough spending authority y Why break even? Because you want just enough spending authority

to operate

y Any excess takes away from the readiness money for operations

| The mechanism for controlling profit and loss is Accumulated Operating _{This is used to} | The mechanism for controlling profit and loss is Accumulated Operating

Result (AOR).

| What’s NOR and What’s AOR?

y Net Operating Result (NOR) is your profit loss statement. Every

This is used to calculate your

rate

NOR = Revenue – Expenses

Net Operating Result (NOR) is your profit loss statement. Every business has one.

| It’s your operating target for the current year (year of execution) | Basis for AOR Recovery

AOR

NOR

R

s

y

y AOR is cumulative gains or losses from operations for all years y In private business, AOR would be considered retained earnings y It’s a running total of NORs

NOR NOR NOR NOR m ul at iv e N O R g

This is used for Execution! How are you doing This

Year?

NOR

NOR

Cu

BUDGETING WHY BUDGET?

WHY BUDGET?

| Allows customer accounts to be sufficiently resourced to pay

( )

for what they need from you (& replenish the DWCF) | Allows DWCF to obtain the resources to:

y Match projected business operations and workload to p j p

recoverable customer rates

y Obtain capital investments to refresh technology and

infrastructure

y Plan for long-lead items or new initiatives to support

projected customer requirements

y Supports Service readiness by resourcing logistics tail to pp y g g

support operations (tooth to tail)

| It documents your business plan and resources the forecasted requirementsq

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NTERNAL

O

PERATING

B

UDGET

(IOB)

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NTERNAL

O

PERATING

B

UDGET

(IOB)

| COST CENTER BUDGET PROVIDING AN APPROVED OPERATING PLAN

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FOR EACH ACTIVITY ORGANIZATION

| IDENTIFIES:

y Direct/indirect Labor Hours

y Expenses - salaries & wages, materials & other

| PURPOSE:

y Control Expenses

y Facilitates Comparison Between Projected And Actual Performance

DWCF B

UDGET

- IOB D

EVELOPMENT

DWCF B

UDGET

- IOB D

EVELOPMENT

| IOB DEVELOPMENT - DIRECT COST

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y Direct cost for labor and material are projected by

considering both historical costs and the projected workload for each productive cost center

y Consider other direct costs for contractual support and

TDY for depot field teams

y Total direct costs for each productive cost center are rolled p

DWCF B

UDGET

- O

VERHEAD

C

OSTS

DWCF B

UDGET

- O

VERHEAD

C

OSTS

| IOB DEVELOPMENT - OVERHEAD COSTS

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y Developed by element of expense

y Distributed to the productive cost centers based on anticipated direct y Distributed to the productive cost centers based on anticipated direct

labor hours for each productive cost center

y Two basic types of overhead cost:

|Production overhead - overhead identifiable to the productive cost

center

|General & Administrative (G&A) - not reasonably identified to a

DWCF B

UDGET

- H

ISTORICAL

C

OSTS

DWCF B

UDGET

- H

ISTORICAL

C

OSTS

| ADJUST HISTORICAL COSTS FOR:

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y Work Content Changes

y Material Consumption Rate Changes y Material Inflation

y Workload Mix Changes

y Pay Raises (OSD/OMB Directed) y Step Increases

y Bonus Pay y Bonus Pay

y Overtime Changes

R

D

O

R

ATE

D

EVELOPMENT

| AVERAGE LABOR RATE

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y Base Labor

y Fringe Benefits y Leave

| OVERHEAD APPLIED RATES

y Production Overhead (Army - Within and Above Shop) y General And Administrative Expense (Army - Base

Operations Identifiable Expense & General & Administrative)

A

CCELERATION

C

HART

**Includes FICA health insurance life insurance and Medicare portion **Includes FICA, health insurance, life insurance, and Medicare portion

A

NNUAL

O

PERATING

B

UDGET

(AOB)

A

NNUAL

O

PERATING

B

UDGET

(AOB)

| Funding Document Which Provides The Basis For Earning

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g g

Budget Authority

| Includes An Operating And Capital Budget | Includes An Operating And Capital Budget

| Operating Budget Identifies Unit Cost Output And Associated Unit Cost Goal

Associated Unit Cost Goal

| Capital Budget Provides Obligation Authority For Investments

B

UDGET

E

XECUTION

Rates approved & Annual Cost Authority received Rates approved & Annual Cost Authority received

Start

Receive funded orders Receive funded orders from customers

from customers Monitor budget

Monitor budget

execution & results on execution & results on monthly schedule

monthly schedule

S a

Distribute cost authority Distribute cost authority to departments to departments Fiscal Year Fiscal Year Product Centers Product Centers produce work & produce work & Bill customers &

Bill customers & manage receivables manage receivables

produce work & produce work & deliver services deliver services

Compute customer Compute customer

h

h _{Capture revenue, costs Capture revenue, costs} charges

P

ROJECT

O

RDERS

P

ROJECT

O

RDERS

| SAME AS A COMMERCIAL CONTRACT TO THE CUSTOMERS’ APPROPRIATION

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y Extends beyond the life of the appropriation. Up to five years after the

appropriation expires for new obligations

y 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 SPECIFIC NUMBER OF ITEMS WITHIN A SPECIFIC TIME FRAME FOR A SPECIFIC PRICE

| DWCF ACTIVITY SHOULD INCUR COSTS OF NOT LESS THAN 51% OF THE

TOTAL COSTS TO PERFORMING THE WORK TOTAL COSTS TO PERFORMING THE WORK

| THE WCF MUST NOT ACCEPT THE PROJECT ORDER IF THE REQUIREMENTS OF

P

ROJECT

O

RDER

C

HARACTERISTICS

P

ROJECT

O

RDER

C

HARACTERISTICS

| Specific Regarding Work To Be Done

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p

| Single Purpose With Identification To A Final Product Or End Item | Includes A Production Schedule

| Includes Funded Cost Per Item | Usually Mission Oriented

| Usually Mission Oriented | Be Performed In House

| Bona Fide Need In The Year Executed | Bona Fide Need In The Year Executed

| Commence Work Within A Reasonable Time (90 Days)

R t O d F C ll ti If W k Fi d B A E i i | Return Orders For Cancellation If Work Financed By An Expiring

E

CONOMY

A

CT

O

RDER

C

HARACTERISTICS

E

CONOMY

A

CT

O

RDER

C

HARACTERISTICS

| Order Not Meeting “Project Order” Criteria

47

g j

| Expires With Appropriation Cited

| Limited To Service In Current Fiscal Year

| Involves Routine Maintenance Or Day-to-day Operationy y p | May Cover Education, Training, Storage, Welfare Or Travel | DWCF Activities Who Incur Costs Against Expired Economy

C

OMMANDER

’

S

O

RDERS

C

OMMANDER S

O

RDERS

| WORK OF AN EMERGENCY NATURE

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| CONDITIONS:

W i i l d d i i

y Written assurance or equivalent documented communication

that an order will be issued promptly

B fid d

y Bona fide need

y Expires not later than 30 days from date of issuance

M

ILITARY

I

NTERDEPARTMENTAL

P

URCHASE

R

EQUEST

(MIPR)

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| An order issued by one military service to another to procure service, supplies, or equipment for the requiring

p , pp , q p q g

service. The MIPR may be accepted on a direct citation or reimbursable basis.

MIPR b d P j t O d E A t | MIPR can be used as a Project Order or an Economy Act

MIPR PROCESSING PROCEDURES

MIPR PROCESSING PROCEDURES

|

Requesting activities send requirements to the

q

g

q

performing activity using DD Form 448

|

MIPR is the performing activities authority to

i /

id h

li

i

b h lf

acquire/provide the supplies or services on behalf

of the requesting activity

|

Changes that affect the contents of the MIPR must

Changes that affect the contents of the MIPR must

be processed as MIPR amendment regardless of the

status of the MIPR

MIPR A

CCEPTANCE

MIPR A

CCEPTANCE

| Performing activities formally accept a MIPR by completing

51

| Performing activities formally accept a MIPR by completing

DD form 448-2, Acceptance of MIPR

| Prepared as soon as practicable, but no later than 5 days after

receipt of the MIPR receipt of the MIPR

| If the time limit cannot be met the requesting activity must be

informed of the reason for the delay and the anticipated date the MIPR will be accepted

the MIPR will be accepted

| The performing activity in accepting a MIPR will determine

whether to use Category I (reimbursable funds citation) or Category II (direct funds citation) methods of funding

MIPR A

CCEPTANCE

(

CONT

’

D

)

MIPR A

CCEPTANCE

(

CONT D

)

… Category I reimbursable funding is used under the following

52

g y g g

circumstances:

- Delivery is from existing inventories of the performing activity

- Production is through Government work orders in Government owned plants

- The DD Form 448-2 is the authority for the requesting activities to record the obligation of funds

activities to record the obligation of funds

… Category II direct funding results in the citation of the requesting

activities funds in the resultant contract

A f d f th t t i th ti

- A conformed copy of the contract is the requesting activities authority to record the obligation

REIMBURSABLE SUMMARY

Project Economy Direct Project Order (Reimb) Economy Act Order (Reimb) Direct Cite/RCP * Non-Reimb

Task Non Severable Either

Task

Non-Severable Severable Either How Funded? Full Funding

(except R&D) IncrementalFunding Depends on Task Expire or

Carryover Carryover Expire at endof FY. No carryover

Must obligate before funds expire

Customer When ork is When ork is When Customer

obligation When work is accepted When work is accepted When contract is signed

51% rule Applies per Applies N/A

FMR (Navy)

Work ceases When funds run out or work is When funds expire or work is Per contract terms work is complete, whichever comes first work is complete, whichever comes first *Request for Contract Proc.

54

MIPR I

MPACT

O

N

C

USTOMER

/ P

ROVIDER

B

OOKS

Unfilled Orders Provider Books Collections Reimbursements Earned Orders Received $ 84

Should complete work by 30 Sept. 2017

$ 1.216M $ 1.216M

Billed to Customer based on Cost In support of the Project (SF 1080 bill submitted)

MIPR ACCEPTANCE $ 1.3M

FY ’12 – 17 – Available To complete Work thru 30 Sept., 2017

Customer Books

Assumes O&M customer

$ 84 Un-liquidated Obligations Customer Books $ 1.216 M Payment / Liquidation $ 1.216 M Cost MIPR ACCEPTANCE $ 1 3M Obligations $ 84

Must be de-obligated if not Completely liquidated by $ 1.216 M $ 1.216 M Based on SF 1080 Bill MIPR ACCEPTANCE $ 1.3M Project Order (DD 448-2)

COST ACCOUNTING

COST ACCOUNTING

| Collects Cost And Production Data

55

| Collects Cost And Production Data

| Serves As A Subsidiary Ledger For The General Ledger | Basis Of Billing For Work Performed

| Provides Data To Prepare Budgets | Provides Data To Prepare Budgets | Provides Unit Cost

K

EY

E

LEMENTS

I

N

A C

OST

A

CCOUNTING

S

YSTEM

K

EY

E

LEMENTS

I

N

A C

OST

A

CCOUNTING

S

YSTEM

| JOB ORDER NUMBER

56

y All costs (direct/indirect) are identified to a job order

| COST CENTER

y Can be either direct or indirect y Each employee belongs to one

D

IRECT

/I

NDIRECT

C

OST

C

ENTERS

D

IRECT

/I

NDIRECT

C

OST

C

ENTERS

| DIRECT COST CENTER

57

y Majority of effort is associated with actual production of work

| INDIRECT COST CENTER

y People and resources generally do not come in contact with end

E

LEMENTS

O

F

C

OST

… LABOR … THESE ELEMENTS OF COST ARE _{REQUIRED SOLELY FOR THE BENEFIT OF A} DIRECT WHEN

SPECIFIC CUSTOMER ORDER (JOB ORDER)

… MATERIAL

… CONTRACT

OTHER

… CLASSIFIED AS INDIRECT WHEN IDENTIFIED AS

SUPPORT TO THE PRODUCTIVE ORDER i.e..PROD. OVERHEAD OR G& A

T

YPES OF

R

ATES

T

YPES OF

R

ATES

| COST APPLICATION RATE

59

y Cost Center Labor Rate For Salaries and Benefits y Overhead Cost Applied to That Cost Center

y Excludes:

|Direct Material

C

OST

A

PPLICATION

R

ATES

U

SE

60

| TO APPLY COST TO INDIVIDUAL JOBS | EXAMPLE:

y Average Labor Rate X DLH = Labor Cost

y Overhead Rates X DLH = Overhead Cost Applied

DWCF COST ELEMENTS

D E

DEPRECIATION EXPENSE

| Depreciation Is The Expending Of Capital Assets Over The

61

p p g p

Useful Life Of The Asset

| Depreciation Expense Included In The Stabilized Rates Or | Depreciation Expense Included In The Stabilized Rates Or

Prices To Generate Cash

| Capital Surcharge Added To The Rates As Required | Capital Surcharge Added To The Rates As Required | Depreciation On A Straight Line Basis

DWCF COST ELEMENTS

MAJOR REAL PROPERTY MAINTENANCE AND REPAIR (MRPM&R)

MAJOR REAL PROPERTY MAINTENANCE AND REPAIR (MRPM&R)

| Costs Associated With Repair And Renovation Of Buildings,

62

p g ,

Structures, Warehouses And Other Real Property Owned/Operated By The DWCF

| Expensed In The Period When The Maintenance And Repair Occurs

| Included In The DWCF Operating Budget

| Passed On To Customers In The Stabilized Rates/Prices | Passed On To Customers In The Stabilized Rates/Prices

DWCF COST ELEMENTS

M

P

C

M

P

C

| Included in the total cost of operations of the DWCF

63

p

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

b l t t t l d ll t ifi d i th P id t’ absolute total dollar amount specified in the President’s budget

DWCF COST ELEMENTS

MINOR CONSTRUCTION FUNDING PROCEDURES

MINOR CONSTRUCTION FUNDING PROCEDURES

| Projects Costing $100,000 Or More But Less Than $750,000

64

j g $ , $ ,

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)

D

EFENSE

W

ORKING

C

APITAL

F

UND

Overhead Expense Classes

65

21 Supervision 62 Purch Of Office Furniture & Equip 93 Environmental 22 Other Salaries And Wages 63 Purchase Of Shop Equip 94 Awards

31 Time Waiting Parts/Equip 64 Equipment Rental 95 Labor Distribution Variance 32 Standby Time 65 Depreciation 96 Labor Acceleration Variance 34 O/H Work By Prod Workers 71 Maint & Repairs To Bldgs 97 Station Support Costs 36 Allowed Time 72 Maint & Repair To Grounds 98 ADP Support Costs 37 Traumatic Injury 73 Repair Office Furniture & Equip 99 Military Labor

41 Telephone Services 74 Maint & Repair Shop Equip 100 FECA (Workman's Comp)

42 Electricity 75 Rearranging Of Facilities 101 DFAS Acctg Svcs (DFAS & DCPS) 43 Steam 76 Emergency/Service Work 103 HQs Support (

43 Steam 76 Emergency/Service Work 103 HQs Support ( 44 Gas 81 Defective Work & Spoilage 104 HRO Support 45 Water 82 Travel/Mileage Claims 105 CA Participation 46 Sewage 83 Training 106 Union Business-ST 51 Janitorial Services 84 Printing & Reproduction 107 Internal ADP Services 52 Pest/Weed Control Service 85 Unallocable Cost 108 ABC Distribution 53 Use Of PWC Transport Equipment 86 Safety Costs 109 Contracted Support 54 Refuse & Garbage Services 91 Inventory Adjustments

C

R

S

A

C

R

S

A

‰ Quality Assurance

Cost incurred in direct support of a customer order shall be directly

66

- Cost incurred in direct support of a customer order shall be directly charged to those orders

- Costs not identifiable to specific job orders shall be charged to an operating support indirect cost center and allocated to the benefitting operating support indirect cost center and allocated to the benefitting direct cost centers

| Inspections and Tests

- Preshop analysis, initial evaluation and inspection, and preinspectionPreshop analysis, initial evaluation and inspection, and preinspection and operational inspections and tests to determine condition of the item shall be recorded as direct labor

| Reparables | Reparables

- Reclamation of unserviceable reparables is performed at the direction of the NICP manager. Items produced as a result of reclamation shall be returned to the Supply systempp y y

C

R

S

A

C

R

S

A

| Backrobbing

67

g

The current acquisition cost of the assembly,

subassembly, component, or part that was “borrowed” and subassembly, component, or part that was borrowed and the cost of installing the borrowed item shall be charged to the benefitting job order

Costs incurred in removing the “borrowed” item and reinstalling the replacement item shall be charged to the overhead of the cost center requiring the part

C

R

S

A

| Cannibalization

68

Taking of an assembly, subassembly, component, or part from a serviceable or unserviceable item that has not been inducted for

i t f it hi h h b i d t d f maintenance for use on an item which has been inducted for maintenance

The current acquisition cost of the cannibalized part and the cost The current acquisition cost of the cannibalized part and the cost of installing it shall be charged to the benefitting job order

Cost incurred in removing the cannibalized item and reinstalling Cost incurred in removing the cannibalized item and reinstalling the replacement item shall be charge to or the operations overhead of the cost center requiring the part

C

R

S

A

C

R

S

A

| Calibration

69

Calibration of an assembly, subassembly, component, part, or other equipment from an item that has been inducted for or other equipment from an item that has been inducted for maintenance shall be charged to the benefitting job order Calibration of equipment used in the performance of its work shall be charged as an indirect expense of the cost center that uses the item being calibratedg

C

R

S

A

C

R

S

A

| Machine Set-Up Costs

70

Cost of programming effort for automatic test and numerically

controlled machines and machine tool set-up time shall be charged to ( )

the benefitting job order(s)

If cost is significant and benefits more that one job order, cost shall be allocated to all benefitting job orders

allocated to all benefitting job orders

Nonproductive labor hours of employees waiting for programming to be l t d i i di t f th k ’ t t

C

R

S

A

C

R

S

A

| Defective Work and Spoilage Costs

71

Examples of corrective work that should be directly charged to a job order include:

1. Acceptable reject rates for castings, welds, and brazing.

2. Minor realignment or refitting of units that are improperly finished or aligned.

C

R

S

A

C

R

S

A

| Defective Work and Spoilage Costs (Cont’d)

72

Defective work and spoilage that is chargeable to indirect costs includes the following:

1. Cost of additional material and labor necessary to remedy or rework end products when defects beyond acceptable levels are detected during the normal production and inspection processes.

2. Costs related to work on items with defects so severe that the item must be removed from the production process and sold as scrap or returned in

t t t i l part to raw materials.

DWCF CAPITAL INVESTMENT PROGRAM

DWCF CAPITAL INVESTMENT PROGRAM

| GOAL:

73

y To establish the capability for reinvestment to facilitate

DWCF CAPITAL INVESTMENT PROGRAM

O

BJECTIVES

O

BJECTIVES

| Improve Product/Service Quality And Timeliness

74

p / y

| Reduce Cost

DWCF CAPITAL INVESTMENT PROGRAM

CIP P

OLICY

CIP P

OLICY

y Budget for Capital Assets

| Only Projects In President’s Budget Financed Through CIP (Substitutes Authorized When Necessary)

| Capital Assets Funded Through DWCF Capital Budget

| Financed Through DWCF Reimbursement Rates Or Capital S h

DWCF CAPITAL INVESTMENT PROGRAM

A

CQUISITION

G

UIDELINES

A

CQUISITION

G

UIDELINES

| More Economical To Purchase Than Lease

76

| Meets Agency Long Range Objective | Improved Efficiency/Effectiveness | New Capability/Capacity

| Replacement Of Unsafe/Unusable Capital Assets | Hazardous Waste Reduction

| Mandated State, Local, Federal Requirement | Pre-investment Cost/Economic Analysis | Post Investment Analysis

DWCF CAPITAL INVESTMENT PROGRAM

E

XCLUSIONS

E

XCLUSIONS

| Major Range And Test Facility Items

77

j g y

| Military And Tenant Support Functions

| Aircraft, Ships, General Passenger Vehicles, Etc.p g | Equipment For Weapon Systems

| GFE Used In An End Product

| Minor Construction Projects For Non-DWCF Activities

| Construction/Facility Projects Exceeding Amounts Specified In 10 U.S.C 2805. (Funded

By MCA) By MCA)

| Environmental Projects

y Financed By DERA

C i l I F M l W lf A d R i Capital Investments For Morale, Welfare And Recreation

N

EW

C

APITALIZATION

T

HRESHOLD FOR

B

UDGET

N

EW

C

APITALIZATION

T

HRESHOLD FOR

B

UDGET

| Revised policy issued April 4, 2007

78

| Effective immediately

| Threshold increased from $100,000 to $250,000 for Equipment, ADP Software and ADP Equipment.

| Threshold remains at $100,000 for Minor Construction.

N

EW

C

APITALIZATION

T

HRESHOLD FOR

B

UDGET

N

EW

C

APITALIZATION

T

HRESHOLD FOR

B

UDGET

| Budget rates are set to fully expense items between $100K

79

and $250K.

| Accountants will Capitalize and Depreciate these items. | Accountants will Capitalize and Depreciate these items.

| Treat the gain as non-recoverable to avoid cash drain.

| New budget exhibit 9D will help in calculating this adjustment.

DWCF CAPITAL INVESTMENT PROGRAM

C

APITALIZATION

C

RITERIA

C

APITALIZATION

C

RITERIA

… ACQUISITION COST =TO OR > $20,000 - FOR REAL PROPERTY (LAND, BLDGS. &

80

MINOR CONSTRUCTION)

ACQUISITION COST = TO OR > $100,000 - FOR ALL OTHER CAPITAL ASSETS, INCLUDING DEPRECIABLE PLANT, EQUIPMENT AND SOFTWARE DEVELOPED, MANUFACTURED, TRANSFERRED OR ACQUIRED

MANUFACTURED, TRANSFERRED OR ACQUIRED

… USEFUL LIFE = 2 YEARS OR MORE … ACQUISITION COST INCLUDES:

† Purchase Cost † Purchase Cost † Transportation † Design † Installation † Oth R l t d C t † Other Related Costs

DWCF CAPITAL INVESTMENT PROGRAM

D

EPRECIATION

C

RITERIA

D

EPRECIATION

C

RITERIA

| STRAIGHT LINE METHOD

81

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

| COMMENCES ON MONTH FOLLOWING: | COMMENCES ON MONTH FOLLOWING:

y Date of Receipt

ll d/ d f

y Date Asset Installed/ Ready for Use

| EQUIPMENT AND MINOR CONSTRUCTION PROJECTS IN SUPPORT OF MOBILIZATION WILL NOT BE DEPRECIATED

CASH MANAGEMENT

CASH MANAGEMENT

… A MANAGEMENT TOOL DESIGNED TO IDENTIFY AND

82

… A MANAGEMENT TOOL DESIGNED TO IDENTIFY AND CONTROL PERIODS OF HIGH AND LOW CASH BALANCES … HIGH CASH BALANCE:

… HIGH CASH BALANCE:

† Bills Not Paid

† R / h S T Hi h † Rates/surcharges Set Too High

… LOW CASH BALANCE:

† Buying Inventory Excess of Needs † Rates/surcharges Set Too Low

CASH MANAGEMENT

| GENERATING CASH IS DEPENDENT ON:

83

y Rates That Recover Full Costs to Include Prior Year Losses y Accurate Workload Projections

CASH MANAGEMENT

| CASH LEVEL CRITERIA

84

y Dependent on accurate and timely data on cash levels

and operational results and operational results

y Maintain 7 to 10 days operational cost and cash

adequate to meet 6 months of capital disbursements

CASH MANAGEMENT

| CASH MANAGEMENT PLAN

85

y Developed During the Budget Process, Takes Into

Consideration:

|Collections, Disbursements, Appropriations, and Other Cash |Collections, Disbursements, Appropriations, and Other Cash

Transactions

|Monthly Phasing Required to Monitor Execution

y Increase Management Attention to:

|Reduce Costs

|Emphasize Timely Billing/collection |Emphasize Timely Billing/collection

CASH MANAGEMENT

NEGATIVE CASH BALANCE

NEGATIVE CASH BALANCE

| CAUSED BY:

86

y Negative NOR

y Large CIP Cash Outlays

y Billing/Reimbursement Cycle Lagg/ y g y Inventory Increases

I

NVENTORY

MANAGEMENT

W

HAT IS

I

NVENTORY

?

W

HAT IS

I

NVENTORY

?

| ITEMS WHICH SUPPORT PRODUCTION & CUSTOMER

87 SERVICE: y Raw Materials y Work In Process O ti S li y Operating Supplies y Finished Goods y Spare Parts

I

NVENTORY

MANAGEMENT

W

HAT IS

I

NVENTORY

?

W

HAT IS

I

NVENTORY

?

INVENTORY MANAGEMENT

y Financed with DWCF cash y Owned by DWCFy

INVENTORY MANAGEMENT

I

NVENTORY

C

ONTROL

I

NVENTORY

C

ONTROL

| EXCESSIVE INVENTORIES CREATE UNNECESSARY EXPENSES FOR 90 FOR: y Handling y Storageg y Spoilage

y Obsolescence And Theft

| INADEQUATE INVENTORIES CAUSE:

y Unsatisfactory Service

y Purchase Price DisadvantagePurchase Price Disadvantage y Excessive Follow- Up Cost y Additional Production Cost

FINANCIAL STATEMENT ANALYSIS

B

ASIC

F

INANCIAL

S

TATEMENTS

B

ASIC

F

INANCIAL

S

TATEMENTS

| STATEMENT OF FINANCIAL CONDITION

91

y (Balance Sheet)

| STATEMENT OF NET COST

y (Income Statement)

S

TATEMENT OF

F

INANCIAL

P

OSITION

S

TATEMENT OF

F

INANCIAL

P

OSITION

| Also referred to as the Balance Sheet

y assets

| dollar amount of future economic benefits owned and managed by the

agency agency

y liabilities

| dollar amounts owed by the agency

y net position (equity) y net position (equity)

S

TATEMENT OF

F

INANCIAL

P

OSITION

S

TATEMENT OF

F

INANCIAL

P

OSITION

| Summarizes the net worth or liquidity of an entity at a particular time

| Changes from day to day

A t thi t t t t t | Accounts on this statement are permanent accounts | Is a summary of accounting equation

| Assets = Liabilities + Government Equity | Assets = Liabilities + Government Equity