Working Capital Fund Presented by: Paul J. Dominick, CDFM

Report
WORKING CAPITAL
FUND
PRESENTED BY:
JOHN S. REIFSNYDER, CDFM
GRADUATE SCHOOL
INSTRUCTOR
1
[email protected]
WORKSHOP FOCUS
 History
of Working Capital Funds (WCF)
 Organizations Utilizing WCFs
 Myths About WCFs
 Basic Concepts of WCFs
 Little or No Appropriated Funds
 Business-Like
 Budget Formulation and Execution
 Cost Accounting
 Stabilized Rates
 No-Year Funding
 Financial and Operational Concepts and
Statements
2
HOOVER COMMISSION RECOMMENDATIONS
 Resulted
in passage of The National Security Act
of 1947

Business /Commercial type activities of the military
departments are to be financed by revolving or
working capital funds

Established the Office Of The Secretary Of Defense
and the Department Of The Air Force

Created Comptroller positions with overall
responsibility for financial systems

Created Joint Chiefs of Staff
3
WORKING CAPITAL FUND HISTORY
AUTHORIZING LEGISLATION
 Public

Law 81-216
National Security Act of 1947
 Codified

in 10 USC 2208
The law authorized working capital funds to
provide financing of industrial-commercial type
activities, and to effectively control cost of
programs and work performed
 Implemented
by several DoD Financial
Management Regulations
4
WORKING CAPITAL FUND
EVOLUTION




1947 – National Security Act of 1947 authorized establishment of
Revolving Funds
1950’S AND 1960’S
 Stock and Industrial Funds
1980’S – Improved product cost information
1981-1985 – Navy ceased free issue of deport level reparables (DLRs)





moved financing to the Stock Fund
1983 – Asset Capitalization Program
1991 – Army/Air Force moved DLRs to stock fund
1992 – Defense Business Operations Fund established
1996 – The Army, Navy, Air Force and Defense WCFs were
established on December 11, 1996, the Defense Commissary
WCF was established in 1999
WORKING CAPITAL FUND
WHAT IS THE WCF?

A revolving fund financial structure established to promote Total
Cost Visibility And Full Cost Recovery of support services
provided to fund customers

Receives little or no appropriated funding

Uses reimbursements received from customers to fund its
operating expenses

Replaced the Defense Business Operations Fund (DBOF) that was
established on October 1, 1991 merging the previously
established stock and industrial funds and the defense
commercial operations

Derives its name from the cyclic nature of its “cash” flow
APPROPRIATED-FUNDED ACTIVITIES
Rely on annual congressional action
 Majority of funding is provided on an annual
basis
 Agencies must obligate the appropriated
funding or “lose” the unobligated balance for
new obligations
 Without an appropriation, agency operations
must stop
 Focus more on using all the appropriated
funding rather than effective results or efficient
performance

7
REVOLVING FUND MYTHS
Myth – Break even each year with no profit or loss
 Fact

Provide customer price stability
 Produce an accumulated operating result of zero in the
Budget Year

Myth – is expensive and an excuse for poor
management
 Fact

Reports and makes visible all incurred costs
 Provides information for both WCF and customer managers
to manage

8
WCF CHARTER REQUIREMENTS

Signed by the Secretary Of Each Service with approval by
the Assistant Secretary Of Defense (Comptroller)

Name and location of the activity

Operating agency responsible for managing the activity

Description of function and type of products/services
offered

Statement of exceptions
9
WCF ELIGIBILITY CRITERIA

Criteria required to be included within the WCF financial
structure

Outputs (goods and services produced) can be identified

Approved accounting system is available

Customers identify products/services required

Advantages/disadvantages of establishing buyer-seller
can be evaluated
CURRENT WCFS WITHIN DOD
 Army
Working Capital Fund
 Navy
Working Capital Fund
 Air
Force Working Capital Fund
 Defense
Working Capital Fund
 Defense
Commissary Working Capital
Fund
WCF BUSINESS AREA CUSTOMERS

DOD organizations

Non-DOD federal government agencies

Private parties and concerns:

Foreign governments

State and local governments

U.S. manufacturers, assemblers, or developers authorized
by DOD
12
NON-DEFENSE WCFS
Department of Interior
 Department of Labor
 Department of Agriculture
 Government Printing Office
 Geological Survey
 Bureau of Engraving and Printing
 Federal Aviation Administration
 General Services Administration

13
OPERATIONAL STRUCTURE

Currently the five DoD WCFs employ about 180,000
civilians and 16,500 military personnel

The five funds are expected to generate
approximately $120 billion in revenue annually

Finance operations without fiscal year limitations

Sell goods to customers

Use revenue received from customers to replace
or buy inventory and finance the production of
goods and services
DEFENSE WORKING CAPITAL FUND (DWCF)
FY 2010 DWCF BUDGET
FY 2008
FY 2009
FY 2010
$4.0
$1.5
$1.5
Civilian
180.9
179.6
179.6
Military
17.5
16.5
16.5
198.4
196.1
196.1
Army
18.8
18.1
16.0
Navy
24.6
25.4
25.4
Air Force
22.7
23.0
21.9
Defense-wide
54.4
47.9
48.6
7.1
7.0
7.2
127.6
121.5
119.1
Appropriation (Dollars in Billions)
Personnel (Full-Time Equivalents in Thousands)
Total Personnel
DWCF Program (Obligation Dollars in Billions)
Defense Commissary
Total DWCF
WORKING CAPITAL FUND
HOW IT WORKS
APPROPRIATES
$ FUNDS
CUSTOMERS
OPERATING FORCES
READINESS COMMANDS
PLACE
ORDERS
REVOLVING
FUNDS
CONGRESS
APPROPRIATED
$ WORKING
CAPITAL
AT FUND INCEPTION
LABOR COSTS
PAY
WORKING
CAPITAL
$$
BILL FOR
COSTS/
SERVICES
FINANCES COST OF PERFORMING WORK
DIRECT MATERIAL
PRODUCTION
OVERHEAD
GENERAL &
ADMINISTRATIVE
16
OVERALL OPERATING CONCEPT

Most funds originated at some point of time from
an appropriation or capitalization of existing
“equity” which formed the “corpus”

Have to be authorized in law

A revolving fund financial structure established to
operate on a business-like basis

“Works” on the basis of being reimbursed for
goods and services sold rather than on an
appropriated fund basis
WORKING CAPITAL FUND
CUSTOMER
18
 The
purchaser of support services:

Determines requirements

Requests funding through the budget process

Balances readiness requirements and available
resources
WORKING CAPITAL FUND
PROVIDER
19
 The
provider is the support activity that produces
goods or provides services:

Satisfy customer requirements

Provides best performance at lowest cost

Use unit cost as a tool

Ensures a READY - to - FIGHT Force
FUNDED BUSINESS ACTIVITIES
Pre - WCF
Stock
Funds
Industrial
Funds
Support
Support
Services
Services
WCF

COMMISSARIES (DECA)

DEPOT MAINTENANCE (ARMY, NAVY, AF)

DISTRIBUTION DEPOTS (DLA & NAVY)

FINANCIAL OPERATIONS (DFAS)

INDUSTRIAL PLANT EQUIPMENT (DLA)

INFORMATION SERVICES (NAVY & DISA)

LOGISTICS SUPPORT ACTIVITIES (NAVY)

PRINTING & PUBLICATION SERVICES (DLA)

PUBLIC WORKS (NAVY)

REUTILIZATION & MARKETING SERVICE
(DLA)

RESEARCH & DEVELOPMENT (NAVY)

SUPPLY MANAGEMENT (ARMY, NAVY, AF,
DLA)

TRANSPORTATION (TRANSCOM, NAVY) 20
WORKING CAPITAL FUND (WCF) BASICS - WCF
OPERATING RESULTS
21
Customers
Providers
Gain
Loss
Revenue
Stabilized Rates
(Set in Advance)
Costs
Time Lag
Cost Control
(Execution Year)
OPERATING CONCEPTS
 Builds
on business-like principles
 Operations
related to the needs and
requirements of customers
 Strives
to break even financially
 Requires
a customer-provider
relationship

Customers determine requirements

Provider reimbursed for products/services
provided to customers
22
OPERATING CONCEPTS – CONT’D
 Focus
on total cost visibility and full cost
recovery for the Department’s support
functions
 Business-like
cost accounting systems
with emphasis on cost per unit of output
 “Free”
of many Congressional funding
limitations
 Long
term objective is to break even
26
OPERATING LIKE A BUSINESS
Must produce
 Quality product
 On time
 At least possible cost
 Buyer-Seller Relationship
 Customers pay for what they receive
 Production dependent upon customer orders
 Must remain competitive
 Operates on a break even point basis over time
 Has its own inventory
 Purchases and depreciates capital equipment

STABILIZED PRICE AND RATE MANAGEMENT
WCF business entities operate on a break-even basis
 Customer prices and rates are established on an end product basis




Prices and rates are established during the budget process at
levels estimated to recoup:
- budgeted cost of goods and services provided
- prior period gains and losses
- as well as approved surcharges for capital asset
acquisition
Budget process is the mechanism used to ensure adequate
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
RATE STABILIZATION OBJECTIVES

Provide Budget Stability to Customers

Assure Comparable Funding Levels Between WCF and
Customer Funds

Ease in Budgeting for Inflation

Develop More Realistic Programs

Promote More Efficient Planning

Foster Better Program Execution
STABILIZED RATE CONCEPT POLICY


Established to Recover:

Operating Expenses

Profits (Losses)

Working Capital To Acquire Assets

Plan AOR to Reach Zero at the conclusion of the execution year
Rates Held Stable Throughout Each Year

Exclusions:

FMS

Non-federal Customers

Base Closures

Inventory Sales-tenants/satellites

Army RESET
WCF BUSINESS AREAS

Two categories of business areas for rate setting
purposes

Supply Management


Uses commodity costs in conjunction with a cost recovery
factor to establish customer rates/prices
Non-supply Management (depot maintenance, R&D, distribution
depots, etc)

Use unit cost rates based on output measures, (cost per direct
labor, cost per product, cost per item received or shipped)
SUPPLY MANAGEMENT
 Finances
the costs of inventories, supplies, and
equipment from the time material is requisitioned
until issued for use or consumption. Specific
objectives are to:

Provide a decentralized system of sound financial and
supply management

Provide a flexible system responsive to supply
requirements

Provide a uniform and simplified accounting and reporting
system
NON-SUPPLY MANAGEMENT
Finances end-items such as Headquarters Services,
common services, maintenance depots and research
and development activities
 Normally develop and assign unit costs based on
identified output measures
 Assigned unit costs include cost per direct labor
hour, cost per product unit, cost per item received,
cost per item shipped, and cost per accounting line
processed

COST REIMBURSEMENT PROJECT ORDERS
Performing activity will notify the ordering activity promptly
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
immediately notify the ordering activity and curtail or cease
performance, as necessary, to avoid exceeding the
estimated cost.
 May result in violation of 31 USC 1301 and 1341

CUSTOMER’S WORKLOAD PROJECTIONS
Customer’s Workload Projections Affect More Than One Business Area:
Turns in reparable and
orders new stock
Ships Depot Level Reparable
(DLR) to Depot Maintenance
Supply
Management
1
2
Depot
Maintenance
Transportation
Customer
4
Stores DLR for eventual
delivery to customer
3
Distribution
Depot
Repairs DLR and ships to
Distribution Depot
32
WHAT’S IN THE RATES WCFS CHARGE THEIR
CUSTOMERS? (DEPOT MAINTENANCE)
A rate has three components:



Direct Costs
 Direct Labor – welder
 Direct Materiel – engines
 Direct Other – TDY, Contract Services
Indirect (Overhead)
 Mission
 Within Shop– supervisor
 Above Shop– director
 Non Mission
 BOCIE – janitor
 G&A – activity commander
Accumulated Operating Results (AOR) Recovery
33
33
WHAT IS ACCUMULATED OPERATING RESULTS?
Remember the WCF goal is to break even?
 Why break even? Because WCFs need just sufficient spending
authority to operate
 Any excess takes away from the readiness money for operations

The mechanism for controlling profit and loss is Accumulated Operating
Result (AOR).

What’s the difference between NOR and AOR?
 Net Operating Result (NOR) is your profit and loss statement. Every
business has one.
 It’s your operating results for the current year
 AOR is cumulative gains or losses from operations
 In private business, AOR would be considered retained earnings
 It’s a running total of NORs
This is used to
calculate your
rate
This is used for
Execution! How
are you doing This
Year?
Cumulative NORs

AOR
NOR
NOR
NOR
NOR
NOR
34
WORKING CAPITAL FUND (WCF) BUDGET

Developed from the bottom up by element of direct expense (Labor,
Material, Contractual Services, Etc.) and top down for overhead costs
(Production Overhead Expense And G&A)

Constrained By Factors Not Found In Private Sector Businesses:

OSD/OMB Directed Inflation Rates

Limitations on Manpower

Legislative Constraints

Stabilized Prices

Zero Profit/loss Goals
INTERNAL OPERATING BUDGET (IOB)
36

Cost center budget providing an approved operating plan for
each activity/organization

IDENTIFIES:


Direct/indirect labor hours

Expenses - salaries & wages, materials & other
PURPOSE:

Control expenses

Develop cost application rates
IOB FUNCTIONS
37

Fixes responsibility for controlling resources and costs

Provides means of monitoring and controlling resources and
costs

Facilitates comparison between projected and actual
performance

Basis for developing work center rate
IOB DEVELOPMENT
38

IOB Development – Direct Cost

Direct cost for labor and material are projected by
considering both historical costs and the projected
workload for each productive cost center

Consider other direct costs for contractual support and
TDY for depot field teams

Total direct costs for each productive cost center are rolled
up to a total depot budget
IOB DEVELOPMENT – CONT’D
39

IOB DEVELOPMENT - OVERHEAD COSTS

Developed by element of expense

Distributed to the productive cost centers based on anticipated direct
labor hours for each productive cost center

Two basic types of overhead cost:


Production overhead - overhead identifiable to the productive cost
center
General & Administrative (G&A) - not reasonably identified to a
productive cost center
ANNUAL OPERATING BUDGET (AOB)
40

Funding document which provides the basis for earning
budget authority

Includes an operating and capital budget

Operating budget identifies unit cost output and associated
unit cost goal

Capital budget provides obligation authority for investments
PROJECT ORDERS
41

Same as a commercial contract to the customer’s appropriation

Extends beyond the life of the appropriation. Up to five years after the
appropriation expires for new obligations

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 price

WCF activity should incur costs of not less than 51% of the total costs
to performing the work

The WCF must not accept the project order if the requirements of the
project order regulations are not met
ECONOMY ACT ORDER CHARACTERISTICS
42

Order Not Meeting “Project Order” Criteria

Expires With Appropriation Cited

Limited To Service In Current Fiscal Year

Involves Routine Maintenance Or Day-to-day Operation

May Cover Education, Training, Storage, Welfare Or Travel

WCF Activities Who Incur Costs Against Expired Economy Act
Orders May Violate 31 USC 1517
COMMANDER’S ORDERS
43

Work of an emergency nature

Conditions:

Written assurance or equivalent documented communication
that an order will be issued promptly

Bona fide need

Expires not later than 30 days from date of issuance

Signed by the commander or his authorized representative
ORDER IMPACT ON CUSTOMER/ PROVIDER “BOOKS”
44
Provider Books
Reimbursements Earned
Orders Received
MIPR ACCEPTANCE
FY ’10 – 16 – Available
To complete Work thru
30 Sept., 2016
$ 1.3M
$ 1.216M
Collections
$ 1.216M
Billed to Customer based on
Cost In support of the Project
(SF 1080 bill submitted)
Unfilled Orders
$ 84K
Should complete work by
30 Sept. 2016
Assumes O&M customer
Customer Books
Expense/Asset
Obligations
MIPR ACCEPTANCE
Project Order
(DD 448-2)
$ 1.3M
$ 1.216 M
Based on SF 1080 Bill
Payment / Liquidation
$ 1.216 M
Unliquidated Obligations
$ 84K
Must be de-obligated if not
Completely liquidated by
30 Sept. 2016
COST ACCOUNTING

A specialized branch of accounting which deals with the
determination of cost

Provides management with the tools to plan, budget, control,
and evaluate operations

Collects cost and production data

Serves as a subsidiary ledger for the general ledger

Basis of billing for work performed
COST ACCOUNTING - COST ACCOUNTING
SYSTEM REQUIREMENTS

Identification of all products and services within an
organization

Identification of all costs, both funded and unfunded,
of the products and services produced

Underlying discipline:

Relates dollars of cost to product or service
produced
COST ACCOUNTING - TWO PRINCIPLE COST
ACCUMULATING SYSTEMS
 Job
Order Costing
 Process
Costing
COST ACCOUNTING - JOB ORDER COSTING

Each individual job order is tracked independently

Material and parts are “drawn” for a particular job

Labor hours charged by artisans to the job they are
working on

Overhead is applied to direct jobs based on
predetermined rates
COST ACCOUNTING - PROCESS COST
ACCOUNTING

Method of accounting used when it is not possible to
accurately associate costs with specific job orders

Permits uniform distribution of labor costs for direct
support functions where reporting by individual job
order is difficult to identify
DIRECT/INDIRECT COST CENTERS
50

Direct cost center


Majority of effort is associated with actual production of work
Indirect cost center

People and resources generally do not come in contact with end
items
ELEMENTS OF COST

LABOR

MATERIAL

CONTRACT

OTHER

THESE ELEMENTS OF COST ARE DIRECT WHEN
REQUIRED SOLELY FOR THE BENEFIT OF A
SPECIFIC CUSTOMER ORDER (JOB ORDER)

CLASSIFIED AS INDIRECT WHEN IDENTIFIED AS
SUPPORT TO THE PRODUCTIVE ORDER
i.e..PROD. OVERHEAD OR G& A
TYPES OF RATES
52

Cost application rate

Cost center labor rate for salaries and benefits

Overhead cost applied to that cost center

Excludes:

Direct Material

Other Direct Costs - Contracts, TDY,etc.
RATE DEVELOPMENT
53


Average labor rate

Base labor

Fringe benefits

Leave
Overhead applied rates

Production overhead

General and administrative expense
ACCELERATION CHART
Annual
Leave Account
Sick
Leave Account
PAID TO
EMPLOYEES
ON LEAVE
Other
Leave Account
CSRS/FERS
Account
*Other Fringe
Benefit Accounts
PAID TO
GOVERNMENT
AGENCIES
Liability
accounts for
fringe benefits
increase from
acceleration
and decrease
from payments.
Eventual
balance equals
zero
*Includes FICA, health insurance, life insurance, and Medicare portion
54
of FICA for CSRS employees
Cost Accumulation and Cost Recovery Fringe Benefit Cycle
COST APPLICATION RATE

Direct labor
•

Salaries and benefits of personnel directly identifiable to a
specific job
Production overhead expenses
Not identifiable to a specific job
 Within and above shop overhead
 Mission costs in support of the productive effort


General and administrative expenses
Not identifiable to a specific job
 Costs in support of activity

55
COST APPLICATION RATES USE
56

To apply costs to individual jobs

EXAMPLE:

Average Labor Rate X DLH = Labor Cost

Overhead Rates X DLH = Overhead Cost Applied

Add: Direct Material Cost Other Direct Cost = Total Cost
WCF COST ELEMENTS
DEPRECIATION EXPENSE
57

Depreciation is the expending of capital assets over the
useful life of the asset

Depreciation expense included in the stabilized rates of
prices to generate cash

Capital surcharge added to the rates as required

Depreciation on a straight line basis
WCF COST ELEMENTS
MAJOR REAL PROPERTY MAINTENANCE AND REPAIR
(MRPM&R)
58

Costs associated with repair and renovation of buildings,
structures, warehouses and other real property
owned/operated by the WCF

Expensed in the period when the maintenance and repair
occurs

Included in the WCF operating budget

Passed on to customers in the stabilized rates/prices
WCF COST ELEMENTS
MILITARY PERSONNEL COSTS
59

Included in the total cost of operations of the WCF 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
absolute total dollar amount specified in the President’s
budget
WCF COST ELEMENTS
MINOR CONSTRUCTION PROCEDURES
60

Projects costing $100,000 or more but less than $750,000
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)
WCF CAPITAL INVESTMENT PROGRAM
61

GOAL:
 To establish the capability for reinvestment to facilitate
mid and long-term cost reduction
WCF CAPITAL INVESTMENT PROGRAM OBJECTIVES
62

Improve product/service quality and timeliness

Reduce cost

Foster competitive business operations
WCF CAPITAL INVESTMENT PROGRAM POLICY
63

Managers shall:
 Identify
 Prioritize
 Justify
 Budget for Capital Assets
Only projects in President’s Budget financed through CIP
(substitutes authorized when necessary)
 Capital assets funded through WCF capital budget
 Financed through WCF reimbursement rates or capital
surcharge

64
WCF CAPITAL INVESTMENT PROGRAM DEPRECIATION
CRITERIA

Straight line method



Less residual value if it exceeds 10% of the cost of the asset
Commences on month following:

Date of Receipt

Date Asset Installed/ Ready for Use
Equipment and minor construction projects in support of mobilization
will not be depreciated
CASH MANAGEMENT
65

A management tool designed to identify and control
periods of high and low cash balances

High cash balance:
 Bills
not paid
 Rates/surcharges

set too high
Low cash balance:
 Buying
inventory in excess of needs
 Rates/surcharges
set too low
CASH MANAGEMENT – CONT’D
66

Generating cash is dependent on:

Rates that recover full costs to include prior year losses

Accurate workload projections

Meeting established operational goals
CASH MANAGEMENT – CONT’D
67

Cash level criteria

Dependent on accurate and timely data on cash levels
and operational results

Maintain 7 to 10 days operational cost and cash
adequate to meet 6 months of capital disbursements
CASH MANAGEMENT – NEGATIVE CASH BALANCE
68

Caused by:

Negative NOR

Large CIP cash outlays

Billing/reimbursement cycle lag

Inventory increases
INVENTORY MANAGEMENT - WHAT IS INVENTORY?
69

Basically inventory is ...
INVENTORY MANAGEMENT
WHAT IS INVENTORY?
70

Items that support production and customer service

Raw Materials

Work In Process

Operating Supplies

Finished Goods

Spare Parts
INVENTORY MANAGEMENT CONTROL
71
Excessive inventories create unnecessary expenses for
 Handling
 Storage
 Spoilage
 Obsolescence and theft
 Inadequate inventory cause:
 Unsatisfactory service
 Purchase price disadvantage
 Excessive follow- Up cost
 Additional production cost

BASIC FINANCIAL STATEMENTS
72

Statement of Financial Condition


Statement of Net Cost


(Balance Sheet)
(Income Statement)
Statement of Chance in Net Position
STATEMENT OF FINANCIAL POSITION
 Also
referred to as the Balance Sheet
 assets
dollar amount of future economic benefits
owned and managed by the agency
 liabilities
dollar amounts owed by the agency
 net position (equity)
the difference between assets and liabilities
STATEMENT OF NET COSTS
 Also


referred to as:
Statement of Operations
Income statement
 Purpose


intended to provide revenue and expense details
reports results (net profit or net loss)
 Prepared
on basis of general ledger 5000 and 6000
account balances
STATEMENT OF CHANGES IN NET POSITION
 Reports
the
beginning net position
 effect of those transactions that caused the net position to
change
 ending net position

 Prepared
on the basis of the Statement of Net Costs
and the “Financing Sources”
STATEMENT OF CHANGES IN NET POSITION

ITEMS THAT INCREASE NET
POSITION

ITEMS THAT DECREASE NET
POSITION

Excess of revenue over cost
Legislative appropriations
Property obtained from another
government agency for which
no reimbursed is required

Excess of cost over revenue
Property provided to another
agency for which no
reimbursement is expected
Funds returned to the Treasury
Appropriations returned





MANAGEMENT REVIEW
77





Net Operating Result
 Measure of an activities revenues against expenses - equivalent to a
commercial firms annual profit or loss
Manhour Execution Rate
 Measures planned direct labor hours to actual - man-hour execution impacts
on the revenue rate, expensing rate and the NOR
Revenue Rate per Direct Labor Hour
 Rate charged to customers for a direct labor of production
Expensing Rate per Direct Labor Hour
 Rate which costs are charged per direct labor hour
NOR Formula
 Revenue rate - expensing rate x man-hours executed = NOR
WCF SUBJECT TO ANTI-DEFICIENCY ACT
78
Significant
areas of operations that, if mismanaged, could result
in a statutory violation of 31 USC.
Section
1517, Title 31 of the US Code states that if a WCF
over-obligates or over-expends dollars associated with its
Capital Investment Program (CIP) approved budget, it
violates this statute.
WCFs must effectively manage their CIP to ensure that the
current Investment Capitalization criteria is complied with
WCF SUBJECT TO ANTI-DEFICIENCY ACT
79
31
USC Violations (continued):
Per Section 1342, WCFs cannot accept voluntary services.
Per Section 1341:
Cannot create cash disbursements that exceed the total
cash available.
Misappropriation, Use of incorrect fund type.
Per Section 1301, Augmentation - Funding expenses from
one organization with those from another organization.
WCFs need to have clear separation and
agreements/ISSAs
WCF SUBJECT TO ANTI-DEFICIENCY ACT
80
 31 USC Violations (continued):
DOD
7000.14R, Financial Management Regulation (FMR), Volume
14 also provides DOD Guidance wrt 31 USC violations.
How
Serious?
COs and Comptrollers have been terminated for
misappropriating funds.
WCF SUMMARY – ADVANTAGES
81

Effectively relates resources and workload

Identifies costs to do the job

Customer pays for what they get

Helps control costs

Financial dependent on:



Obtaining customer orders

Balancing expenses and reimbursements
Effective means to control overhead

Move people to the workload

Finance own inventory
Freedom from appropriation cycle limitations

Ability to carryover work

CRA impacts minimized
WCF SUMMARY – DISADVANTAGES
82




Non-WCF managers do not understand
Perceived as too costly
Rates fixed 2+ years out (crystal ball)
Continued reliance on appropriation type reports and controls
QUESTIONS?
?
?
?
?
?
83
Good Luck and Happy Trails
John S. Reifsnyder
[email protected]
84

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