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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
LEAN ACCOUNTING

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

Commanding Officer, USCG Finance Center

what is lean accounting
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
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 at uscg finance center

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
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
lean concepts
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
Implementing Lean
  • Management Socialization
  • Workforce Socialization
  • Implementation:
    • Training
    • Projects
    • Management Structure & Mechanisms
    • Priorities
typical weekly lean activities
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
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.
slide11

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
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
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
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 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!!!!!
ima cost management survey
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
strategic tools for management accounting
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
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 accounting19
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?