Defense Working Capital Funds Current Issues Gretchen Anderson, Director, Revolving Funds Cynthia Jones, Senior Analyst May 2014

Transcription

1 Defense Working Capital Funds Current Issues Gretchen Anderson, Director, Revolving Funds Cynthia Jones, Senior Analyst May 2014

2 FY Pain 1

3 A Look at Where We ve Been So Far 2

4 Agenda FY 2014 Midyear review Fuel AOB Improvement FY 2015 Congressional interest items Upcoming budget cycle Cash... Cash... Cash 3

5 FY 2014 Midyear in Brief 4

6 FY 2014 Midyear Summary Revenue: Below plan due to asset availability, parts, personnel shortages, weather, reduced or slow customer spending Cost: Below plan due to asset availability, parts, personnel shortages, reduced customer demand Cash: Most are near plan or slightly higher Carryover: Above plan due to personnel shortages 5

7 Fuel 6

8 Fuel market volatility continues to create execution year turbulence. Can create a huge bill or funding surplus ($1.4 billion in FY 2013 reprogramming). Hedge by using DWCF cash to shield customers from some price increases. Losing about $15 per barrel in FY Major crude oil price increases after a budget submission could impact the Components other programs. Study revealed no correlation between fuel price changes and readiness. Congress directed the Government Accountability Office to study the Department s fuel price setting process. The report is due June Fuel is directly related to CASH: FY 2014 Fuel FY 2014 Defense Appropriation reduced DW cash by $347.5 million. Customers funded at President s Budget. Currently plan to sustain the FY 2014 budgeted composite fuel rate 7

9 Defense Working Capital Fund (DWCF) Funds Control Auditability OUSD(C) maintains DWCF (97x4930) Funds Control Audit trail: President s Budget Apportionment from OMB Annual Operating Budgets OMB apportions DWCF budget authority to OUSD(C) Revolving Funds issues AOBs that are the starting point for each DWCF s Funds Control responsibility. Department can transfer authority among and within the activities OUSD(C) determines who-when-how much budget authority each DWCF Component receives based on Department priorities. Any remaining authority resides at the Department DWCF audit successes include DeCA, DFAS, and DISA. 8

10 AOB Improvements and the SBR Audit OMB Circular A-11 provides guidance: Budget execution, the apportionment and reapportionment process, the report on budget execution and budgetary resources (SF 133), and a checklist for fund control regulations. Appendix F of A-11 addresses the format of the SF 133, SF 132, and SBR. The AOB provides an audit trail in accordance with A-11 to support the SBR. Budget Apportionment(SF-132) AOB SF-133 Reapportionment AOB SBR OMB is developing additional guidance for Federal WCF activities. Appendices to OMB Circular A-11 also provide further explanation on: The Antideficiency Act and Title 31 of the U.S. Code. Funds control regulations, Capital Budgeting Principles and other principles for Federal Infrastructure Investments. DoD FMR Volume 2B Chapter 9 is the most comprehensive WCF guidance. Audit Readiness for the SBR - FY All financial statements FY

11 FY 2015 Congressional Interest Commissaries add back $100M of $200M cut (FY 2015) Conduct a review, utilizing the services of an independent organization experienced in grocery retail analysis, of the defense commissary system Survey of random members of the armed forces regarding pay and benefits, including the value that members place on forms of compensation Furlough Prohibit non-disciplinary furloughs of a DOD civilian employee whose performance is charged to a working capital fund (2 exceptions) 10

12 FY 2015 CAPE/Comptroller Studies DFAS RAND study (2001), Improving DFAS Customer Interaction 2 nd RAND study (Jun 2014) USTRANSCOM Completed 2014, Funding Valid DoD Transport Missions Only CAPE redoing study SHIPYARDS CBO study (2007), Comparing WCF & Operational Funds 2nd study (Oct 2014) DISA Initiated Feb 2014, Assess Financing Structure, Alternatives Phase I (Oct 2014) WHS/PFPA 60-day study directed by CAPE ADSD memo May 2014 Kick-off planned Summer 2014 Non-starters: Enterprise Services DLA 11

13 Managing Revolving Fund Cash 12

14 Government Wide Accounting (GWA) Department of Treasury initiative to: Streamline accounting and reporting processes across the government Increase transparency and improve accuracy of financial information for stakeholders Eliminate stovepipe reporting brings proprietary and budgetary accounting in synch Real-time classification of transactions and reporting on Fund Balance with Treasury (Cash) Disbursing entities will report transactions directly to Treasury on a daily basis Central Accounting Reporting System (CARS) will provide daily visibility of cash transactions and balances Treasury goal for full transition to CARS is October 1, 2014; DoD will not meet that goal 13

15 1,400.0 Current Monthly View of Cash Treasury Reported Cash 1, , , , Treasury Reported Cash 14

16 Daily View of Cash 1, , , , , Treasury Reported Cash Daily Cash Balance 15

17 Revolving Fund Issues and Concerns Revolving Funds are subject to the Anti-Deficiency Act for cash balances Loss of flexibility and reaction time Extraordinary actions ( reprogramming / advance billing) take time to implement Factors outside managers control influence cash Commodity cost volatility; Congressional transfers Customers delaying payments and incremental ordering Fiscal constraints and budget uncertainty create additional challenges Operating on tighter margins Stakeholder and customer decisions (loss of sales / work) Improved financial records and accounting systems Daily visibility poses unique challenges to Revolving Funds 16

18 FY 2013 Cash Study In February 2013, WCF managers were asked to provide: Daily collection, disbursement and cash balance data An evaluative report addressing fund unique challenges, controls, planned actions and policy recommendations What we learned: Each business area has unique challenges and capabilities Cash tends to decrease as daily disbursements occur, but increase only periodically with collection cycles Some funds have good visibility of daily cash through ERPs today; others have limited visibility of cash during the month Some funds plan to increase the frequency of their collection cycles Most funds will need to grow and maintain a larger cash corpus Need to justify and defend cash balances based on actual risks and business events; the standard 7-10 day metric is no longer sufficient Need to re-think our traditional rules about cash 17

19 Cash Requirement Policy What s the right amount? New policy being drafted / staffed now for FY 2016 PBR 7 10 day cash metric eliminated OUSD(C) will no longer direct a one-size-fits-all cash metric Managers will develop cash requirements tailored to ensure solvency for their funds Based on relevant business events and activities like: Collection and disbursement cycles Retention or Return of Accumulated Operating Results to customers Capital investments Liquidation of direct appropriations Risk and Volatility Reserves for Commodity Price Fluctuations and/or future capital investments New exhibit, Fund 13b, Cash Requirements Provides maximum flexibility to fund managers Format can be changed with Director, Revolving Funds approval Cash requirement new approach to cash sufficiency 18

20 SEATTLE PDI Operationalizing Cash 29 May 2014 USTRANSCOM J8: Mr. James McGinley OPR: USTRANSCOM/J8

21 Background Cash Sufficiency Requirements DoD FMR 7-10 day cash management policy not one size fits all Eliminating 7-10 day cash balance drives question: How to determine sufficient cash levels? TWCF s Challenge: Operationalize Cash Management Cash is readiness enabler to USTRANSCOM mission operations Operational events require cash to execute Two critical elements: Availability and risk tolerance Integral to Commander s decision process must easily grasp both dimensions 20

22 LOW HIGH Risk Tolerance Elements of TWCF Cash Sufficiency A Baselined Daily Cash Disbursement Demand = $547M B Financial/Operational Volatility = $204M $1,153M F FY 14 Cash Requirement Cash Ceiling F C Cont/Humanitarian Operation Readiness = $73M D Contract Liability Reserve = $77M E Unbudgeted Price Fluctuations (e.g. Fuel) = $174M $901M E D C B A Cash Floor A B C D E F Continuity of COCOM Operations = $391M Readiness Reserve = Cash above ceiling HIGH Probability LOW 21

23 USTRANSCOM TWCF Mission Ops Areas Busines s Area PAX Cargo SAAM/Co nt Training Exercise FY14 Plan Workload 231K Passengers 696M Ton Miles 1, 946M Ton Miles 31K Flying Hours 101M Ton Miles Busines FY14 Plan s Area Workload Liner 8.4M MTONs DP3 64K Vehicles (POV) Port Ops 7.2M MTONs Busines FY14 Plan s Area Workload Cargo 1,245 Ship Days Surge 5,110 Ship Days Prepo 3,665 Ship Days POL Tanker 2,248 Ship Days Business Area Courier FY14 Plan Workload 1.2M Lbs Workload Mix Workload Mix Workload Mix Workload Mix 75% Military 0% Military 66% Military 77% Military 25% Commercial 100% Commercial 34% Commercial 23% Commercial Total Cost Total Cost Total Cost Total Cost $6.7B $2.9B $682M $8.6M 22

24 STONs Global Strategic Cargo Operations ODYSSEY DAWN Support Special Mission Requirements TOMODACHI Support F E Contingency Support Force Rotation D C B Baseline Workload A 0.00 January 201X February 201X March 201X April 201X May 201X 23

25 Available Options Cash Management Analysis & Decision Making USTRANSCOM Paradigm: Forecast /manage cash given historical trends balanced with emerging national defense strategy/priorities Above Cash Ceiling Mitigate future rates Reduce Service Level bills Scrub aged accounts payable/accruals where invoicing is slow Below Cash Floor Collect delinquent customer bills Utilize service level bills for fuel/commodities Implement out of cycle cash surcharges/future rate increases DWCF cash transfers 24

26 Questions/Comments TOGETHER, WE DELIVER 25

27 A COMBAT SUPPORT AGENCY Sanna Sims DISA Chief Financial Executive (A) Chris Barnhurst DWCF Budget and Operations Branch Chief Dec FEB

28 UNCLASSIFIED Overview of DISA s Business Areas DISA provides telecommunications and IT services via three business areas: DISA DWCF BUSINESS AREA Approximate Annual Business Volume Telecommunications Services DISN Subscription Services $1.3B Reimbursable Services $850M Enterprise Acquisition Services (Defense IT Contracting Organization) Information Technology Contracts $3.3B Non-DISN Telecommunications Contracts $700M Joint Enterprise License Agreements $870M Computing Services (Operations at 11 Defense Enterprise Computing Centers Worldwide) $975M Operating in a complex IT environment drives business area and service offering-unique cash requirements, based on: Various contract structures Vendor invoicing practices Customer collections processes and workload estimates DISA has developed a cash requirements model to determine the required level of cash needed to meet day-to-day requirements and ensure operational flexibility PDI 2014 DWCF UNCLASSIFIED Current Issues v1.0 27

29 UNCLASSIFIED Key Facts DISA Disbursements: 94% of DISA disbursements driven by contracts, only 6% driven by civilian payroll (drives cash volatility) Average daily disbursement = $26M Highest one-day disbursement over sample period = $152M $150,000,000 $300M drop in cash over 13 days of normal operations DISA Cash Considerations Key Facts DISA Collections: Three major collections postings per month Average lag between billing and collection is 15 days Vendor Prepayments Downward Enterprise License Agreements pressure on cash balance Unanticipated changes to customer workload DISA Outlays Sample Data $100,000,000 $50,000,000 $0 -$50,000,000 -$100,000,000 -$150,000,000 -$200,000,000 DISA s complex IT business = Cash volatility PDI 2014 DWCF UNCLASSIFIED Current Issues v1.0 28

30 UNCLASSIFIED Cash Requirements Model Applied DISA uses statistical analysis to determine cash requirements Historical analysis establishes average daily cash outlays over a period of time Statistical analysis is applied to determine required cash levels to meet DISA s accepted level of risk Note: Data represents point-in-time analysis for use in influencing DISA s FY15 Cash requirements are BES not equal across all DISA business areas and are broken into three categories: 1. High Risk: Joint Enterprise License Agreements (JELA) Joint Enterprise License Agreements require DISA to make substantial, up-front cash disbursements to vendors on behalf of the Department (upwards of $100M+) Disbursements are made prior to collecting customer funds, and therefore can cause major disruptions to cash levels JELAs require DISA to maintain a higher average cash balance, but the Department receives a benefit in the form of lower licensing costs 2. Medium Risk: Contracts requiring up-front disbursements Specific task orders require DISA to disburse cash up-front for things like software licenses and network maintenance 3. Low Risk: Normal business operations (pass-through and standard contracts) Overall, impact on operations is low The analysis shows the probability of DISA s cash balance falling below our accepted risk levels on any given day Cash balance at 2 standard deviations from goal = 97.5% probability that cash balance will remain above our defined risk level on any given day Cash balance at 3 standard deviations from goal = 99.9% probability that cash balance will remain above our defined risk level on any given day Customer workload estimates are critical to DISA forecasting and managing cash Statistical analysis provides a repeatable process for establishing cash level targets PDI 2014 DWCF UNCLASSIFIED Current Issues v1.0 29

31 UNCLASSIFIED DISA Customer Engagement Services/COCOM Drumbeats Navy drumbeat Monthly (currently on strategic pause) SOCOM drumbeat Quarterly Air Force Use of Services Monthly Army Resource Integration Group (RIG) Weekly Agency/Service Executive Sessions (1 st 3 rd Qtr FY 2014) Director, Defense Health Agency Commander 24 th Air Force Command Air Force Cyber Deputy Chief of Naval Operations for Information Dominance Director for Command, Control, Communications and Cyber (J6) USSTRATCOM J6 Commanding General Army Material Command DISA/Director of National Intelligence (DNI) Day Director, Defense Logistics Agency (DISA/DLA Day) CIO Resource Planning Board participation As requested DISA Customer Forum participation Monthly Foreign Visits 8 visits DoD School Visits 6 visits Next Step Revise DISA Service Catalogue and DISA mission partner interface portal Sets foundation for one entry point into DISA for services/capabilities PDI 2014 DWCF UNCLASSIFIED Current Issues v1.0

32 Questions / Comments? 31