1. GFP Working Group Property and Equipment Policy Update
OUSD(AT&L) P&EP Office
Ms. Amber Propert
23 October 2013

2. Agenda Important Policy Changes for GPP&E Financial Reporting
Overview of the Capitalization Threshold study
Analysis
Recommendation
Policy moving forward
Other P&EP Activities
APSR Identification Project
Status of APSR Checklist
IUID Parent-Child Project
Questions and Next steps

3. Memo – Elimination of Military Equipment Definition and Increase to Capitalization Threshold
KEY TALKING POINTS
Significant Accomplishment for the Department
Collaborative Effort between OUSD(Comptroller) and P&EP, Jointly signed memo
There’s been talk about raising the Capitalization Threshold for years, NOW its reality
Changes implemented that are designed to simplify accounting for General Equipment
DoD IG also involved in the process at a high level (aware of initiative, aware of key findings, aware of proposed recommendations)

4. Key Guidance Provided in Memo
Combine ME with GE
ME definition rescinded
ME will be reported as “General Equipment” beginning Fiscal Year 2014
Increase Cap Threshold for GPP&E
Raise from $100,000 to $1 million for Air Force and Navy General Fund assets
Raise from $100,000 to $250,000 for remaining DoD for all IUS & other GE for General and Working Capital Funds
Changes to be implemented prospectively starting 10/1/2013
Increase Cap Threshold for Real Property
From $20,000 to $250,000 for all new Real Property assets and modifications
Conduct Valuation for new GPP&E
For assets placed into Service 10/1/2013 & after
Follow FIAR guidance for adequate supporting documentation
Value assets using expenditure data if processes and systems support
OK to estimate asset costs if systems and processes can’t support accumulating expenditure data by asset
Conduct Valuation for Legacy Assets
First priority is assets with a Net Book Value remaining by September 30, 2017
Validate values and ensure adequate supporting documentation (as prescribe by FIAR guidance)
Must be completed by 9/30/2017
Secondary priority is fully depreciated assets; validate value and supporting documentation for fully depreciated assets
KEY TALKING POINTS
Refer mainly to chart!
Explain and emphasize implementation will be on a “prospective approach”
Current assets remain on the books and continue to depreciate for remainder of useful life
Policy change will apply for new acquisitions (acquired on 10/1/13 and beyond)

5. Capitalization Threshold Overview Objective
Discuss high level analysis of Capitalization Threshold study
Enable GFP Working Group to gain a basic understanding of how the new Capitalization Threshold was determined
Identify areas where change in policy impacts general property accountability practices
KEY TALKING POINTS
This is primarily a transition slide into the Cap Threshold Study
Indicate topic of capitalization threshold policy change is for informational purposes, “just FYI”

6. Background on Capitalization Threshold Study
DoD capitalization threshold, $100k, established in 1999 excluded Military Equipment (ME) and may no longer be an appropriate threshold
OUSD(AT&L) P&EP supported capitalization threshold study in 2009
Assumption was analyzing military equipment (ME) and general equipment (GE) together will significantly change the mix of assets being capitalized, warranting a study to assess the affects of a change in threshold (source: Mr. Easton’s “2013 Capitalization Threshold Study” memo issued 1 March 2013)

7. Initial Factors to Consider
Individual Component thresholds were not ideal
Bulk purchases were excluded as a possible threshold option, would result in losing ability to account for individual assets
Desired threshold as high as possible, while creating a minimal impact on DoD and individual Component financial statements
Army’s low dollar/high density asset mix creates challenges
Initial target for acceptable capitalization rates were in low to mid 90 percent range (re: 2009 study)

8. Preliminary Recommendations
Recommended options (as of 5 June 2013 – presented at meeting with Mr. Easton):
Recommendations and impacts based on implementing new threshold on retroactive approach
Intent was to capitalize, at least, 90% of assets at DoD and Component levels
Analysis excluded WCF
Army asset mix created challenges even at $250k threshold
OUSD(C) and OIG supported direction of analysis; however, determined 90% capitalization rate is unacceptable
Prospective implementation was discussed and agreed upon
Further analysis was required to support recommendations and measure future impacts based on new implementation direction
DoD-wide $1M
Threshold
DoD-wide $250k
Navy and AF $1M
DoD-wide $200k
Component Specific
KEY TALKING POINTS
Explain analysis at high level
Profiled data: identified Army, Navy, and Air Force account for 98.17% of total acquisition cost and 96.63% of total number of assets change (as expected)
Assessed impact of threshold change at individual Component level in addition to DoD level
Initially, assumed implementation would occur on a retroactive basis, analysis reflected that approach
First bullet refers to first round of potential thresholds
Address feedback received from stakeholders from coordination process
Next steps include analysis estimating impact on balance sheet for 5 year outlook (prospective implementation approach) to determine whether or not the percentage capitalized negatively impacts the balance sheet, and assesses what would be acceptable to the audit community
Preliminary analysis and recommendations focused on GF, expanded study to review impact on WCF as well

9. New Capitalization Threshold
Change to capitalization threshold policy:
$1M Navy (+USMC) and AF capitalization threshold (GF assets only); $250k DoD-wide capitalization threshold
Recommendation and analysis coordinated with DoD stakeholders, and well received by OUSD(C), OIG, and FIAR communities
Determine process and actions required to implement new capitalization threshold
P&EP will provide support and guidance to Components for implementation of new capitalization threshold
KEY TALKING POINTS
Slide serves as a “wrap-up” of capitalization threshold
Transition to two on going projects: IUID and APSR studies

10. APSR Validation Analysis – Project Charter
Identify a population of systems capable of qualifying as an acceptable APSR
Validate system capabilities compared to BEA PMO self-assessment, as well as compliance with required functionality; refine APSR population
OBJECTIVE:
Develop segmented listing by indicating whether systems are “most likely”, “likely”, or “unlikely” to qualify as an acceptable APSR
Refine listing to identify only those systems that perform required functionalities based on BEA capabilities and research of available resources
Create tool to help robustly define and assess the likelihood a system satisfies the requirements of an APSR
DELIVERABLES:
KEY TALKING POINTS:
Objective #1: Discuss independent research of systems, methodology to try to quantify system capabilities (i.e., assigning weighted values to capabilities, working sessions to prioritize systems based on current knowledge)
Data source: system capabilities based on PMO self-assessment provided by Enterprise Business Integration team
Deliverable #1: i.e. “9-box” chart
Deliverable #3 (“Moving forward”) refers to checklist  transition to next slide

11. “accountable versus managerial”
APSR Checklist
Checklist overview:
Tool to identify capabilities essential for a system to operate as an acceptable and auditable APSR for equipment
Reference guidance and directives that systems need to adhere to
Checklist determines difference between core requirements and addition capabilities that add value but are not required
“Bigger picture”: define parameters of an acceptable APSR
Checklist currently being coordinated with DPAP
Are Components required to designate one system as their “accountable” APSR?
If not, should they? And will they?
Prevents duplicating records and creating a disconnection between universe of systems
Discussion Point:
“accountable versus managerial”

12. Checklist Snapshot

13. Feasibility Study of IUID Registry Data for Valuation Project Charter
Research and gain understanding of policy directing responsibility to manage and update parent-children relationships in IUID Registry
Analyze new acquisition IUID records, to include end items associated with parent-child components, to assess the quality of data
Pending results of Objective #1, determine practicality and viability of using values in IUID Registry as a resource to value military and general equipment
OBJECTIVE:
Interim Deliverable: periodic status updates to P&EP team
Document understanding of roles and activities associated with IUID Registry record management, and address questions from research
Report findings and determine opinion on quality of data and usability
Report analysis and findings from reconciling IUID values with available validated sources
DELIVERABLES:

14. Thank You! Questions? Comments? Contact: Amber Propert
For general questions and information, visit our website:
Thank You! 14

15. Back-up Slides

16. Summary & Component Breakdown
Data Source: ME and GE asset listings which support the FY2012 Financial Statements from all Components and Agencies identified as Material for GE in latest FIAR Guidance
KEY TALKING POINTS
All components and DoD agencies identified as “material” for General Equipment in the latest FIAR Guidance
Components asked to provide detailed asset listings for all ME & GE assets that make up the dollar values reporting in FY2012 Financial Report
Asset Data received from both General Fund and Working Capital Funds
Combined Data Set totaled over $1 trillion dollars
Army, Navy (including USMC) and Air Force represented over 98% of the reported dollar values & approx. 97% of the number of items
Working Capital Funds assets represented less than 1% of the total
Navy (including USMC), Air Force, and Army account for 98.17% of total acquisition cost and 96.63% of total number of assets

17. DoD Consolidated Analysis
DoD-wide Capitalization Thresholds by Capitalization Rates
KEY TALKING POINTS
Using individual asset acquisition cost data, determined exact dollar value that represented the desired Percent to be capitalized
Slide shows DoD Wide results
Key take-away from slide is that this helped established some beginning thresholds that should be further analyzed
If we wanted to Capitalize 90% of the dollars on a DoD wide basis, the desired threshold would be $887,000. At 95%, threshold would be $266,000

18. Component Specific Analysis
Component Capitalization Thresholds by Capitalization Rates
KEY TALKING POINTS
This slide shows the same data as the previous slide on a component level basis
Since Army, Navy(& USMC) and Air Force represent 98+% of dollar values, they’re the only ones shown
Note the huge disparity between the estimated capitalization threshold at 90% capitalization rate for the Army ($191,000) and Navy ($12.4 million)
Army’s asset composition (High density of low dollar assets) will drive entire department down to the Lowest Common Demoninator

19. Recommendations for Consideration
DoD Level Impact of Various Threshold
Component Impact of Various Threshold
KEY TALKING POINTS
Using the prior slides, established a couple of capitalization thresholds to consider
$200,000
$250,000
$500,000
$1 million
A high capitalization threshold SIGNIFICANTLY impacts the Army’s financial reporting and its ability to obtain a clean audit opinion

20. Statement of Net Cost Analysis
Scenario
Percentage Impact of SNC: GF Assets
DoD-wide
Navy (+ USMC)
Air Force
Army
$250,000
0.60%
0.35%
0.67%
1.50%
$1,000,000
1.35%
0.84%
1.68%
3.09%
$1 M Navy+AF & $200k DoD
0.85%
1.06%
Percentage Impact of SNC: WCF Assets
$200,000
0.56%
1.21%
0.31%
0.77%
1.82%
0.44%
*Only analyzed Components with separate WCF statements in financial reporting
Leveraging the 2009 study and further discussions on SNC impacts, 2% was determined to be the maximum acceptable change
Impact on SNC is less than 2% for potential recommendations

21. Impacts of Prospective Implementation
GF Assets: Projected Five Year Impact
For $1M/$200k scenario, the impact on equipment (net) to DoD and its Components for Year 1 and Year 5 are less than 5%, resulting in a capitalization rate greater than 95%
WCF Assets: Projected Five Year Impact
For $200k scenario, the impact on equipment (net) to DoD and its Components for Year 1 and Year 5 are less than 6%, resulting in a capitalization rate greater than 94%