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LEAN ACCOUNTING CAPT Larry R. White, CMA, CFM, CPA, CGFM Commanding Officer, USCG Finance Center What is Lean Accounting? Lean Techniques should be applied to accounting processes. Managing & measuring operations by financial accounting measures often produces bad decisions.

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LEAN ACCOUNTING

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LEAN ACCOUNTING

CAPT Larry R. White, CMA, CFM, CPA, CGFM

Commanding Officer, USCG Finance Center


What is Lean Accounting?

  • Lean Techniques should be applied to accounting processes.

  • Managing & measuring operations by financial accounting measures often produces bad decisions.

    • Tradition accounting measures can impede implementation of lean in operations.

    • Value Stream Focus


Outline

  • Lean in financial transaction processing.

  • Understanding the Financial Accounting/Reporting Perspective

    • If they won’t understand you, maybe I can help you understand them…..


Lean Six Sigma atUSCG Finance Center

Customers: USCG, TSA, DNDO, DHS Purchase Card

Transactions: 2,000,000 Payments/$5B

Financial Reports: 600/month

Staffing: 360 GS, 22 Military, 170 contractors.

Second largest data center in CG.


Impact to Date

  • Backlogs/Work in Process – 1 day or less

    • 1 year ago 20 days or more

    • Managing to daily inflow, not prompt pay deadline

  • Redeploy 20 FTE, about 20 more likely

  • Overtime 75% of prior year

    • Most recently 20% of prior period


Eliminate Waste

Continuous Improvement

Respect for People

Get Control of the Work (1 day WIP)

Improvement is everyone’s job, all the time

Know what the customer values from your process better than they do – and delight them!

Lean Concepts

FinCen Concepts


Implementing Lean

  • Management Socialization

  • Workforce Socialization

  • Implementation:

    • Training

    • Projects

    • Management Structure & Mechanisms

    • Priorities


Typical Weekly Lean Activities

  • Daily Operations Meetings:

    • Backlog, Error Rates

  • Team Process Improvement Meetings – Tues & Thurs

    • Project Generation

  • Weekly Status Meeting & Project Follow-up

  • LSS Program Meeting w/Blackbelts


  • Real Benefits

    • View Operations as a Production Process

      • Accounting mindset to production mindset

    • Focus on the process, not the person

      • Performance Targets (Quality & Efficiency)

      • Improvement - Willingness to accept change

      • Customer focus

    • Respect for People

      • Your work is important and management is interested.

      • It’s not all about the IT system.


    The Accounting Perspective


    Business Environment/CapitalMarkets

    Regulators

    Auditors

    Analysts

    Investors

    Etc.

    External Financial

    Reporting

    Value Creating

    Operations

    Decision Support,

    Planning, & Control

    Suppliers

    Customers

    Competitors


    Balance in the Accounting Profession

    Management Accounting:

    Decision Support, Planning,

    & Control over Value Creating

    Operations

    Financial Reporting & Oversight

    Preparing and Auditing

    GAAP Financial Statements


    GAAP Financial Reporting

    • Objective:

      • Information to present & potential Investors & Creditors in making resource allocation decisions

      • Assess amounts, timing, & uncertainty of future cash flows

        • Not designed to show value of an entity

        • Measured on Accrual Accounting basis

        • GAAP is an economic model–inherently abstract

      • Assess Stewardship Responsibility of Mgt

        • Protect entity’s economic resources

        • Comply w/law, regulation, contractual provisions


    Characteristics of GAAP FR

    • Relevance (to Investors & Creditors)

      • Predictive & Confirmatory Value, Timeliness

    • Faithful Representation (of real world economic phenomena)

      • Verifiable (general consensus, not complete agreement, on representation & measurement method)

      • Neutral

      • Complete

    • Comparability (includes consistency)

    • Understandability (to those with reasonable knowledge of FR & with reasonably diligent study)

    • Constraints: Materiality, Benefits & Costs (to investors & creditors)


    Internal Control/SOX

    • Internal Controls over Financial Reporting

      • Process Maps

      • Evidence Generated

      • Controls Tested

    • Internal Controls over Compliance w/Law & Regulation

    • Intern Controls over Operations

      • Opportunity!!!!!


    Cost Management is a key contributor to achieving strategic objectives.

    Need for “actionable” cost information a top priority

    Despite importance, cost information is often impaired

    Implementing new cost mgt tools & systems islow to medium priority

    Traditional mgt accounting tools remain in wide use.

    Decision makers require clear, quantified value proposition for new tools.

    IMA Cost Management Survey


    Activity Based Methods

    Target Costing

    Capacity Mgt

    Asset Mgt

    Process Mgt

    Extended Enterprise

    Lean Enterprise

    Theory of Constraints

    Process Based Financial Reporting

    Non-financial Performance Measurement

    Strategy Planning & Execution

    Customer Lifetime Value

    Enterprise Risk Mgt

    Resource Consumption Accounting

    Strategic Tools for Management Accounting


    Accounting Problems with Lean & Operational Improvements

    • Change creates complexity

    • Accounting uses lots of estimates and changing them is a big deal

    • People believe information fm the accountants, even when its silly & old

      • Depreciation and which machine makes a cheaper product

      • Most decision making is “on the margin”, not full cost. (within the production value stream)

        • Understanding the nature of cost is critical.

        • Costs become more fixed & less decision relevant

        • Fixed costs/investment creates leverage capability

      • Relevance or attributable (to an operational decision)

      • Operational measures, not Financial, are the leading indicators of success.


    What is Lean Accounting?

    • What I do at the Finance Center?

    • Removing Financial Accounting/Reporting fictions from operational decision making?

      • Focusing on financial information relevant to the production value stream.

    • What problems does accounting and financial control create for you?


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