The Coast Guard recently adopted a new accounting strategy that significantly simplified and strengthened the management and accountability of major operational electronic systems. The new "Higher Level Assembly" strategy introduced a standard approach to electronics that perfectly aligns with the Coast Guard's treatment of all other operational assets.
The new strategy was born out of a necessity to solve three problems described in the following paragraphs.
Standardize Asset Accounting: The Coast Guard needed to capitalize the Service's largest-ever Information technology acquisition. In doing so, it realized there was no uniform process to capture and Identify electronic systems, particularly large operational systems with a non-standard number of major elements dispersed over varying geographic areas.
Simplify and Standardize Asset Management: Auditor site visits and personal property Inventories revealed that electronic component data in the Coast Guard's property system of record often were Incorrect, largely because owner/operators and maintainers were two different groups of people. Maintainers frequently replaced components without notifying the owner/ operators or ensuring a corresponding update was made to the property asset records. With the owner/operators focusing on system functionality and general use--while being largely unfamiliar with the specific components that comprise the system (and the complex nomenclature companies often assign them) the process to identify and validate system changes proved cumbersome and time-consuming.
Simplify the Inventory Process: As a culmination of the two conditions just addressed, members of inventory count teams had a difficult time Identifying and locating electronic system components. The Coast Guard also lacked a formal method to support proper inventory of the larger geographically-dispersed operational systems.
Facing all three problems, the Coast Guard took a fresh look and, beginning In fiscal year (FY) 2013, formally implemented the Higher Level Assembly (HLA) strategy. This new strategy sparked a major change for the Coast Guard, not just In remediating an audit weakness and supporting an unmodified financial statement opinion In FYs 2013 and 2014, but significantly enhancing the full lifecycle--including acquisition, maintenance, and disposal.
While the HLA concept is fairly simple, there are many details in the Implementation. Consider the following: At what level is the system categorized, grouped, and called an asset? How will Inventories be completed, especially for remote assets? How will Individual components be tracked? How do we account for asset improvements? How will HLAs be valued if there is no historical acquisition information?
This article focuses on the Coast Guard's process to remediate Property, Plant, and Equipment (PP&E) accounting weaknesses in its electronic systems. We discuss the concept of the HLA, along with the accounting, valuation, and inventory methods. We also share lessons learned in implementing this new property accounting strategy.
Higher Level Assembly
The Coast Guard began using the HLA concept in 2009, when the Service started remediating personal property asset valuation and date-in-service records. While the term HLA wasn't in use at that time, the concept was the same and rather straightforward. Throughout government, there are standalone items, which are single quantity items with a specific purpose or capability. For example, consider a pry-bar, which is a single piece of metal shaped to produce needed leverage in a task.
Most personal property assets, however, actually aren't single quantity items but aggregated into systems. As an almost universally understood airframe system, the helicopter is an easily identifiable object with a largely standard form and shape. Even with its many variations, an observer readily can identify a helicopter, but subconsciously may not think of it as a system. By definition, systems (including helicopters) are single assets comprised of multiple components--sometimes with thousands of components--that work together to accomplish a mission, or set of missions. The Coast Guard's major operational assets are all HLAs, including vehicles, airplanes, small boats, and cutters.
Aggregation is possible because Statement of Federal Financial Accounting Standards (SFFAS) No. 6: Accounting for Property, Plant and Equipment, gives a certain amount of leeway for an entity to decide at what level to categorize and record property. SFFAS No. 6 specifically states,
In determining the level at which categorization takes place, an entity should consider the cost of maintaining different accounting methods for property and the usefulness of the information, the diversity in the PP&E to be categorized (e.g., useful lives, value, alternative uses), the programs being served by the PP&E, and future disposition of the PP&E (e.g., transferred to other entities or scrapped). Note 26 to SFFAS No. 6 states that greater detail may be required to guard against loss, theft, misappropriation, etc. The Coast Guard interprets this greater detail as a systematic process for recording component level details of the HLA, as necessary. The greater detail is provided by recording electronics components in a subsidiary logistics management system (LMS).
Electronics (ELEX) systems...