POSITION PAPER -- Cost Accounting

for

*Department of Energy I-MANAGE Program Joint Requirements Conference*

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| Deliverable ID:  | Position Paper -- Cost Accounting                 |
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| Version number:  | 1.02                                              |
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| Draft/Final as   | 17 Mar 2003                                       |
| of:              |                                                   |
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| Printed on:      | 13 Nov 2023                                       |
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| Author:          | Sean P. Keefe                                     |
|                  |                                                   |
|                  | Sean.Keefe@hq.doe.gov                             |
|                  |                                                   |
|                  | (301)903-2109                                     |
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| Owner:           | Chris Simpson, I-MANAGE Program Manager           |
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Status of Document

> Draft
>
> Delivered
>
> Accepted

Document information

Document source

This document is maintained as an online document. Contact the author
for the latest version.

Revision history

  --------- --------- ------------------------------------- -----------------
  Version   Date      Summary of changes                    Revised By
  number                                                    

  1.01      17 Mar 03 Version 1                             Sean Keefe

  1.02      19 Mar 03 Incorporate Team Comments             Sean Keefe

  1.03      20 Mar 03 Comments from integration team        Sean Keefe
  --------- --------- ------------------------------------- -----------------

Approvals

The following people have approved this document. (Sign below name)

  ---------------------- ------------------------------------------------
  Name                   Function

  Chris Simpson          DOE I-MANAGE Program Manager

  **Signature**          **Date:**

  Warren Huffer          DOE I-MANAGE Federal Program Executive

  **Signature:**         **Date:**

  Laura Kramer           DOE STARS Project Manager

  **Signature:**         **Date:**

  Don Cox                IBM I-MANAGE Contractor Program Executive

  **Signature:**         **Date:**
  ---------------------- ------------------------------------------------

Distribution

This document has been distributed to:

  ---------------------- ------------------------------------------------
  Name                   Function

  Sean Keefe             Cost Accounting/Financial Reporting Team Lead

  Jim Reid               Cost Accounting/Financial Reporting Team Member

  Jay Patel              Cost Accounting/Financial Reporting Team Member

  Rob Briede             Cost Accounting/Financial Reporting Team Member

  Wendy Miller           Cost Accounting/Financial Reporting Team Member
  ---------------------- ------------------------------------------------

# Position Paper -- Cost Accounting

1.  Recommendation

    1.  The recommended approach to cost accounting at the Department of
        Energy (DOE) will include capturing costs in organizational,
        cost element and work breakdown structure (WBS) "buckets" for
        financial reporting purposes on a monthly basis. The Standard
        Accounting and Reporting System (STARS) system will be
        implemented with an accounting flexfield (AFF) that will include
        an organizational cost center component, and a WBS utilizing
        three segments (program, project and work for others (WFO)).
        This will allow capture of costs at or below the current Budget
        and Reporting (B&R) level. The WBS will be flexible enough to
        accommodate the needs of the various organizations. Through
        policy and practice, a common WBS definition should be followed
        throughout the Department so that a consistent and comparable
        financial reporting structure can be maintained.

2.  Issue Description

    1.  Provide a brief description of the issue on which we are taking
        a position.

        1.  WBS -- A *[department-wide WBS]{.underline}* should be
            developed so that cost reporting for both Program/Project
            management and Budget/Funds Control can be accomplished and
            tied to departmental performance metrics (the team believes
            that this would be best accomplished by establishing a
            standardized structure).

        2.  Cost Center -- The department currently utilizes Cost Center
            to further breakdown three elements; organization, object
            class, or B&R. Our AFF allows for the use of all three cost
            center definitions. In our recommendation, we are using cost
            center as a unique *[cost gathering]{.underline}* entity
            within the organizational structure only.

        3.  Cost Element -- Several survey respondents expressed a need
            for cost element level detail for both Federal and **Major
            Operating Contractor (MOC)** costs. The term MOC includes
            all management and operating as well as management and
            integrating contractors. There are two major issues to be
            addressed. The first issue is determining the appropriate
            level of detail for the cost elements to be reported by the
            MOC's and whether the cost elements should/could be
            standardized for all MOC's. The second issue is determining
            the impact on the MOC's financial systems of reporting cost
            element level detail. Would the benefits outweigh the cost?

        4.  Frequency -- The following issues were considered in
            deciding to keep the MOC feed at a monthly frequency:

            1.  The preponderance of the survey responses indicated a
                preference for monthly reporting.

            2.  Field offices have or could have access to detailed MOC
                data as updated by the MOC.

            3.  Most relevant Federal data (e.g., travel,
                contract/purchase order, payroll) will be available on a
                near real time basis in STARS.

            4.  The impacts of requiring more frequent data from the
                MOC's have not been documented but the team believes
                that it would be overly burdensome.

3.  Proposed Solution

    1.  Major considerations within the cost accounting approach at DOE

        1.  Frequency of Data Collection

            1.  The MOC feeds will continue to be required on a monthly
                basis. As noted in 2.1.4., no significant benefit has
                been noted for increased frequency as long as the field
                offices have access to transactional, detail level MOC
                cost data through inquiry only access to MOC systems.

            2.  STARS will contain Federal cost data (travel, payroll,
                procurement, etc.) on a near real-time basis (these
                interface intervals are to be determined).

        2.  Cost Element

            1.  Cost element detail will be captured in the Object Class
                segment of the AFF.

            2.  The object class segment is five digits in length. The
                first three characters are held for the official Office
                of Management and Budget (OMB) object class code. The
                final two would be utilized as a sub-object class in
                order to denote the detailed cost element.

            3.  As noted in 2.1.3., a determination will need to be made
                as to what cost elements are to be captured. The level
                of cost element detail required from the MOC's should be
                developed in consultation with the Financial Management
                Systems Improvement Council (FMSIC).

        3.  Organizational Element of Cost

            1.  The organizational element of cost will be captured in
                the reporting entity segment of the AFF.

            2.  The reporting entity segment is five digits in length
                allowing for an extensive hierarchy. The reporting
                entity segment is dependent on the allottee segment.
                Each allottee will own a unique organizational hierarchy
                within the reporting entity segment. This means that
                each allottee value will have one hundred thousand
                reporting entity values available for use.

            3.  The STARS implementation team has begun the process of
                establishing an organizational hierarchy.

            4.  Within each allottee, a cost center hierarchy will be
                developed to allow for costs to be accumulated within
                specific organizational "buckets". As an example, the IT
                department within the Albuquerque operations office may
                further breakdown their organization with a helpdesk
                cost center, network support cost center, PC support
                cost center, and database administration cost center.
                These separate cost centers will allow for the
                management of costs related to specific organizational
                activities.

        4.  Work Breakdown Structure Element of Cost

            1.  The WBS element of cost will be captured in three
                separate segments of the AFF (program, project and WFO).

            2.  The program segment is seven characters in length
                allowing for ten million values. This segment replaces
                the current B&R structure. A hierarchy will be
                established within the program segment in order to
                capture the detailed levels of the B&R and report at any
                level within the hierarchy.\
                \
                As noted in 2.1.1., a department-wide standard WBS
                should be developed in order to provide a method of
                capturing a standard lowest level task regardless of the
                organizational or budget breakdown.

            3.  The project segment is six characters in length allowing
                for one million values. This segment is intended to
                capture those elements of the WBS that occur below the
                existing B&R level (Activity Data Sheets (ADS), and
                Technical Task Plans (TTP), Field Work Proposal (FWP),
                Nuclear Energy Research Initiative (NERI), and Annual
                Operating Plan (AOP) codes).\
                \
                A single project within this segment can also be broken
                down in to its lower level components via a hierarchy,
                thus allowing for an even lower level of detail to be
                captured.

            4.  The WFO segment is seven characters in length allowing
                for ten million values. This segment is intended to
                capture all work for others activity (reimbursable work,
                intra-office and inter-office work orders). A single WFO
                value can be further broken down into a hierarchy of
                lower level activity.

        5.  Full Cost

            1.  Full cost (including program direction (see 5.1) entries
                would be made for financial statement reporting purposes
                at the end of the third and fourth quarters The
                indication received from our surveys and follow up
                interviews did not indicate a need for full cost
                reporting at any level lower than the financial
                statements.

            2.  The department currently complies with the cost
                accounting requirements as identified in Statement of
                Federal Financial Accounting Standards (SFFAS) #4,
                Government and Performance Results Act (GPRA), and OMB
                Circular A-11. This compliance is accomplished through
                year-end allocation entries for Federal program
                direction and other department-wide costs (depreciation,
                contingent liabilities, and other overhead related
                costs). These allocations are made to what DOE refers to
                as responsibility segments (for the most part the
                equivalent of the sub-program level of the current B&R
                structure).

            3.  The MOC data feed currently provides full cost at the
                B&R and project level of the WBS.

    2.  Identify any high level system changes

        1.  Need to determine the capability of Funds Distribution
            System (FDS) as it relates to intra-month allottee
            transfers. (See 3.3.4)

    3.  Identify any policy implications

        1.  Standardization of WBS

        2.  Identification of cost elements to be detailed for both
            Federal costs and MOC costs.

        3.  Allow for the field offices to have access to MOC's cost
            data through on-line inquiry

        4.  Transfer of budget authority between allottees more
            frequently than monthly

4.  Benefits

    1.  The proposed solution provides for capturing cost data at the
        levels identified (both cost element detail and WBS level
        detail) as needed for improved management capabilities. The
        proposed WBS as it is represented in the STARS AFF provides for
        effective management reporting for the various organizations
        within the Department.

    2.  The proposed solution also addresses the full cost question in a
        manner that satisfies both stated management reporting needs and
        Federal cost accounting requirements.

5.  Tradeoffs

    1.  Direct charging of Program Direction - Direct charging of
        Program Direction is a policy issue. The STARS system will be
        setup to handle either allocations or direct charging depending
        on the policy outcome. The department\'s payroll functions are
        being outsourced this year. The new system may provide a payroll
        distribution capability that will allow for federal employee\'s
        time to be charged to those specific program/projects on which
        the employee has been working. **Should that payroll
        distribution system be implemented, the STARS interface with the
        outsourced payroll system would be set up accommodate the needed
        data.** Although identifying and direct charging those costs
        within program direction that can be related to specific
        programs may provide for a higher degree of compliance with
        SFFAS #4 and GPRA, there are several factors contributing to the
        continuance of the current allocation process.

        1.  To achieve what might be a more accurate compilation of
            "full costs" for DOE's programs/subprograms/projects the
            Department would have to set up a labor distribution system
            to capture, at a minimum, the time for those employees, at
            Headquarters and in the field offices who work directly on
            programs, subprograms, and projects. A methodology would
            also have to be developed to allocate the time/costs of all
            remaining employees (indirect employees) to the programs,
            subprograms, and projects on a monthly basis. Additionally,
            a determination would have to be made on how to properly
            account for the other Program Direction related costs (e.g.
            fringe benefits, travel, training, contractual services)
            related to the employees who charge their time direct since
            some of these costs would be treated as direct costs and
            others as indirect costs.

        2.  If DOE is to account on a "full cost" basis, it would appear
            they would also have to budget on a full cost basis. This
            would raise a number of issues.

        3.  The team has not identified any decision making processes
            that would change significantly if direct charging of
            program direction was adopted.

        4.  The team believes that the cost of direct charging program
            direction would far exceed any potential benefit.

    2.  Program Direction \"Drill Down\" to the integrated contractors -
        We already receive full cost from the integrated contractors.
        The full cost is applied to the current B&R and project levels
        in the DOE work breakdown structure (WBS). The system is capable
        of applying the department\'s overhead at any level within that
        WBS. It is true that the cost allocation method currently used
        by the department stops at a high level. **Should department
        policy require allocation at a lower level within the WBS, the
        system will allow for that allocation.** All of our discussions
        to date have indicated that the performance measures will be
        measuring costs in the DOE WBS and not in the various integrated
        contractor WBS\'s. This means that the integrated contractor
        full cost and DOE overhead (allocated/direct charged at the
        prescribed WBS level) would be in the department\'s accounting
        system at the level determined to be appropriate by the
        department. Performance measures would then be applied to the
        fully costed B&R.

    3.  Direct charging of Program Direction - Direct charging of
        Program Direction is a policy issue. **The STARS system will be
        setup to handle either allocations or direct charging depending
        on the policy outcome.** The department\'s payroll functions are
        being outsourced this year. The issue is whether or not the
        department wants to implement a payroll distribution system that
        will allow for federal employee\'s time to be charged to those
        specific program/projects on which the employee has been
        working. Should that payroll distribution system be implemented,
        the STARS interface with the outsourced payroll system would be
        set up accommodate the needed data.

    4.  It should be noted however, that OMB, GAO, and IG full cost
        requirements can be met through allocation of program direction
        at the level specified by the department. Direct charging of
        program direction, while perhaps more accurate, is not required
        to accomplish full cost.

    5.  The development of a standardized Work Breakdown Structure at
        this time would provide the Department an opportunity to
        streamline the financial configuration of the accounting data
        and therefore the AFF structure as well. However, if this
        opportunity is not chosen at this time, the Department is
        limiting its ability to capture program/project information
        consistently and at levels that can be meaningful to managers.

6.  Requirements not Considered

    1.  Cross-cut -- More information is needed in order to determine if
        transactional level data can be identified by cross-cut
        criteria. In addition, the impact of tracking specific cross-cut
        related, detail transaction data at the point of transaction
        entry on multiple accounting systems at the integrated
        contractors is unknown.

    2.  Travel/Commitments at the MOC -- This requirement was raised by
        one organization. The group believes that the level of detail is
        lower than what is appropriate for the departmental system.

    3.  Plan to Actual reporting -- This requirement was indicated by
        one organization. Although the system is capable of plan to
        actual reporting, no department-wide need was identified. The
        utilization of the Oracle "General Ledger Budgeting"
        functionality to accomplish comparative reporting against
        planned data could cause confusion regarding the term "Budget".
        The Federal environment utilizes the term to denote funds
        control while Oracle utilizes the term to denote a planning
        tool.

    4.  Earned Value -- Although the STARS system will capture cost data
        at the level needed for this calculation, it does not provide a
        means to capture project schedule information. This could be
        captured within the data warehouse or the proposed Performance
        Management data structure.

    5.  Accrue cost and labor hours for prime contractors -- This was a
        request from a single organization. The group believes that this
        was not appropriate for collection in the department-wide core
        financial system.

    6.  Automatic reconciliation with purchasing source systems -- This
        will be addressed when the appropriate interfaces are developed.
        The team does not see this impacting the requirements for a cost
        accounting structure.

    7.  Hard controls below the Congressional Control Level -- The STARS
        system allows for only one user determined control level. That
        level has been established at the Congressional control level.
        Management controls (i.e. targeted reporting and alerts) may be
        used to monitor other levels.

    8.  Exhibit 300/53 OMB Identifier -- This low level detail was
        requested by two offices. The team determined that this need
        should be followed up on in the future to determine the specific
        needs. If the Exhibit 300 work activity is treated as a project,
        it may be identified within the Local Use or some other
        accounting flex-field segment, allowing segregation of the
        project costs and obligations.

    9.  Upload from Program systems to STARS -- This requirement was
        identified by one organization. All interfaces to be developed
        will be determined by the project team. One of the objectives of
        the I-MANAGE program is to reduce redundancy. Where STARS, as
        *an enterprise system*, can replace program system
        functionality, interfaces will not be provided.

    10. Download to Program systems -- The system will provide the
        capability to download cost data in a standard format that can
        then be imported into other ancillary systems with import
        capability.

    11. Track financial data back to language in the budget request --
        This should be handled as part of the I-MANAGE Standard Budget
        System requirements, but is feasible assuming the language in
        the budget request is tied to specific, common data elements
        shared between the two systems.