FUNDING OF ORGANIZATION PROPERTY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP93-00229R000100060020-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 18
• Document Creation Date: December 14, 2016
• Document Release Date: April 7, 2003
• Sequence Number: 20
• Content Type: REPORT

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FUNDING OF ORGANIZATION
PROPERTY
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The following paper, entitled, "Principles and Practices for Funding of
Organization Property," was written in, and is sponsored by, the Office of
Logistics. It has been reviewed and approved by the Office of Planning, Program-
ming and Budgeting, and the Office of Finance. This document is designed to
be both an educational and working aid for Organization personnel and specifi-
cally for those whose duties require a comprehensive knowledge of the policies
and principles that guide the Organization's property funding and requisitioning
systems.
This paper does not purport to be a regulatory issuance nor does it contain
the type of procedural guidance found in Organization Handbooks. It was de-
cided, therefore, that the paper would be issued in this informal fashion so that
it might serve as a background reference document for a better and more com-
prehensive understanding of the appropriate Regulations and Handbooks.
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CONTENTS
Page
INTRODUCTION .................................................... 1
PROPERTY REQUISITIONING AUTHORITY (PRA) ................... 3
What PRA Is ....................................................... 3
Control of PRA .................................................... 3
Distribution of PRA ................................................ 5
PRA AND THE OFFICE OF LOGISTICS PROPERTY PROCUREMENT
ALLOTMENT IN ACTION ...................................... 6
MANAGEMENT OF THE OFFICE OF LOGISTICS PROPERTY PRO-
CUREMENT ALLOTMENT ...................................... 7
MANAGEMENT OF CURRENT INVENTORY ........................ 7
NEW OR REPLACEMENT INVENTORY ITEMS ...................... 8
INVENTORY PRICING .............................................. 9
LOCAL PROCUREMENT FUNDS .................................... 10
UNFUNDED PRA ................................................... 10
MISCONCEPTIONS SURROUNDING THE PROPERTY FUNDING
SYSTEM ......................................................... 12
PRA and FPA ...................................................... 12
Turn-in of Property by Users ........................................ 12
Depreciation of Property ............................................ 12
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PRINCIPLES AND PRACTICES FOR FUNDING OF ORGANIZATION
PROPERTY
This paper deals primarily with the basic principles of the property funding
system and with some of the more common problems which are encountered.
It does not attempt to cover the more intricate transactions, such as reprogram-
ming, since each must be accomplished according to its own conditions and
circumstances and according to the appropriate authorities and policies which
exist at the time. The objectives of the paper, then, are to identify and define
the various parts of the property funding system, to clarify the relationship
of those parts, and to emphasize the importance of communication and control
at all levels to ensure the successful operation of the system.
BUDGETING FOR PROPERTY
Although all segments of the Organization budget are developed generally in
the same manner, the following discussion will be limited to the budget for
property (supplies and equipment). Budgetary figures for property requirements
begin their development on the basis of the "Call for Office Estimates" issued
by the Office of Planning, Programming and Budgeting approximately one year
prior to the commencement of the fiscal year during which the property will
be used. Thereafter, the estimates are reviewed by the Organization and the
Office of Management and Budget and ultimately become a part of the Organi-
zation budget which is presented to Congress in January prior to the beginning
of the operating fiscal year. Up to this point in time, however, property require-
ments have not been identified in detail and are represented in the budget only
as separate total-dollar figures for supplies and for equipment. Further refine-
ment is postponed until an approved budget figure is established by Congress.
Based upon the Congressional appropriation figure, and a subsequent apportion-
ment from the Office of Management and Budget, the Office of Planning, Pro-
gramming and Budgeting allots property requisitioning authority to using com-
ponents according to the estimated property requirements of each. Only at this
time do operating components make a detailed instant forecast, broken out by
supplies and equipment by materiel categories.
Each using component is expected to base its property requirement estimates
upon the activities and operations which it has planned for the fiscal year
concerned in the approved budget. In practice, however, these estimates are
usually based upon cost data for activities carried out in previous years. In
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addition, property requirement estimates are requested to be structured and
defined according to the following eight categories of materiel:
a. Ordnance items
b. Transportation and airborne items
c. Industrial and engineering items
d. Communication items
e. Electrical items
f. Medical items
g. General administrative and housekeeping items
h. Photographic items
Property estimates and budgets developed realistically and in detail enable more
realistic planning for procurement and inventory. For example, a budget pro-
vision for "airborne equipment" is relatively meaningless, except for the dollar
value reserved for it, as opposed to a specific entry for "100 cargo parachutes."
The development of such detailed property requirement data obviously
requires a record system which will provide an equally detailed feedback of
cost and use information to those officers who are responsible for the preparation
of estimates. An information base of such magnitude lends itself to automatic
data processing systems, and some parts of the Headquarters property trans-
action data are so processed at the present time. Until the Support Information
Processing System (SIPS) becomes operational, however, these worldwide data
will not be available in an automated system. This is not to say that good
estimating cannot be performed during the interim through the use of informal
manual recordkeeping systems, particularly in those property categories where
high-dollar-value items or high activity are involved.
Another step of the budgeting and fund allocation process is the estimate
by the budgeting component regarding the types and value of property to be
obtained through the Logistics System and that which the component or its
field subelements will acquire directly from vendors through local procurement.
This structuring of requirements, as we shall see later, has a very direct effect
on the ultimate allotment of procurement funds to the Office of Logistics and,
accordingly, the subsequent ability of that Office to furnish requested materiel
to its customers. For purposes of this paper, the following definitions will apply:
a. Local Procurement - the action taken by a field installation to acquire
property for its own use with funds specifically allotted for procurement,
or the use of those allotted funds to perform a procurement service for
another station.
b. Logistics System - the method by which customer requirements are
satisfied from property stocked and issued by Organization depots or directly
procured by the Organization's Logistics System.
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SECRET
PROPERTY REQUISITIONING AUTHORITY (PRA)
Discussion of the property budgeting process in the preceding paragraphs
closed at the point where a tentative decision is made regarding the sources
from which property will come, and implied that the property budget must
begin to undergo a funding transformation in order to become operative. Such
a transformation does occur and it is in this area that misunderstanding begins
to develop.
An approved budget, which combines the total estimated property require-
ments of the organization, presupposes that certain limitations accompany it and
that a system exists to ensure that spending does not exceed it. In property
budgets, the control mechanism and limitations reside in the Property Requisition-
ing Authority or, more commonly, PRA.
What PRA Is
PRA, as its full title suggests, is only an authority to requisition, up to a
maximum dollar limitation, and is not an allotment of funds. It is supported by
budgeted funds, however, so we shall refer to it at this point as funded PRA.
It is analogous to the use of a checking account with a bank rather than pur-
chasing with coin and currency. Looking at PRA from an organization-wide view-
point, it represents, for the most part, the total dollar value of the property
which has been budgeted for by all components, except that it does not include
the value of that property budgeted for to establish new inventory or to in-
crease the stockage levels of items already in inventory. This total of PRA is
distributed among the various components according to the approved estimated
requirements of each, and is the financial control which places a ceiling on the
amount of property that may be acquired by using components either from the
Logistics System or by local procurement.
Control of PRA
Regulations require that each component with the authority to acquire prop-
erty maintain a prescribed official financial record to control and record the use
of its share of PRA, and that it certify to the Organization supply or procurement
source that unused authority is available in a sufficient amount to cover the cost
of the materiel being requested on each of its requisitions. The analogy of the
checking account still applies. The control record is maintained in a manner which
shows how much PRA has been used and how much remains for encumbrance
during the remainder of the applicable fiscal year. (Ideally, PRA records should
be maintained according to the eight materiel categories; however, this is not
required at the present time.) These PRA-use data, modified by anticipated prop-
erty requirements, can be used as a planning base upon which to build require-
ment estimates in succeeding budgets.
SECRET 3
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Control of PRA is vested in the component concerned and the recording
responsibility generally resides in the Budget and Fiscal Officer of that com-
ponent, although in some instances, particularly overseas, the control record
is maintained by Logistics personnel. It is the Budget and Fiscal Officer who
certifies that sufficient authority exists to meet the costs of requisitions, encumbers
the authority accordingly, and reports his encumbrances and PRA balances
monthly to the Office of Finance. Through the use of copies of purchase orders,
shipping documents, contractual instruments, Office of Finance reports of issues,
and any other documentary medium which reflects true costs, the Budget and
Fiscal Officer can make adjustments to encumbrances and balances in his PRA
control records.
The need for "adjustments" implies that a difference existed between the
amount encumbered by the Budget and Fiscal Officer and the amount finally
charged by the supplier of the materiel. This is true in many cases because
the exact cost of materiel might not be available to a requisitioner at the time
his requisition is prepared. The requisitioner, or the Logistics Officer if one
is assigned to the requisitioning activity, estimates the cost and it is this estimated
figure which is used by the Budget and Fiscal Officer for encumbrance purposes.
The accuracy of the remaining balance of unencumbered PRA for some period
of time, then, depends upon the accuracy of the estimated costs. This area
of disparity can become vital as a fiscal year draws to a close and PRA is
approaching its encumbrance limits. For example, suppose that late in the
month of May the control record of the Budget and Fiscal Officer reflects an
unencumbered PRA balance of $200,000. Requisitions for various items of
equipment, totaling $180,000, are placed against the Logistics System, and a new
remaining unencumbered balance of $20,000 appears to be available for requisi-
tioning during the remainder of the fiscal year. However, the estimated costs
of some of the new requisitions and of those already in process were understated,
adjustment data were not available in time or adjustments to the PRA control
records were not made, and the delivered costs of materiel totaled $210,000.
Instead of having an unencumbered PRA balance of $20,000, the Budget and
Fiscal Officer is now faced with a deficit of $10,000 which he must satisfy from
other adjustments of his PRA; or he must convert other funds to PRA if he is to
remain within his PRA ceiling.
It is important, therefore, that cost estimating be performed as accurately
as possible through the use of Organization price indices for those items identified
in the Logistics System, and by consulting with the Office of Logistics when
non-System items are involved. There must be close communication between
the Office of Logistics and the Logistics and Budget and Fiscal Officers of the
operating components to ensure that the Budget and Fiscal Officer is informed
as soon as significant differences between estimated and actual costs are dis-
covered, or when program changes occur. It is equally important that the Budget
and Fiscal Officer, immediately upon receipt of any better data, adjust the
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encumbrance and balance entries in his PRA control record. To do less than
that opens the way for possible breakdowns in the property funding process.
Distribution of PRA
Earlier, it was said that each component (usually at the Division level)
identifies its property requirements, by dollar value, according to those which
it expects to be provided through the Logistics System and those which will
be procured locally by its subelements. Both segments of Property requirements
are subject to PRA controls since they equate to the total of property budgeted
for use by each component, but the disposition and administration of each is
quite different. Let us first examine what happens to the larger segment which
represents those materiel requirements to be provided through the Logistics
System.
OFFICE OF LOGISTICS PROPERTY PROCUREMENT ALLOTMENT
The primary funding vehicle for the operation of the Organization's Logistical
System is the Office of Logistics Property Procurement Allotment. Since the
composition of the Allotment normally can be represented by two funding
principles, each will be discussed separately for clarity.
The larger portion of the Allotment is made up of the total dollars budgeted
by, and approved for, each component for property to be used by it during
the operating year, less the total of those dollars identified for, and allotted to,
each component for its own local procurement of property outside of the Logis-
tics System. Recalling that property budgeted for use by components is repre-
sented by PRA, this portion of the Office of Logistics Property Procurement
Allotment might also be thought of as that dollar equivalent of PRA which will
be used for requirements to be placed only against the Logistics System. For
example, if the total requirement for property to be used, or PRA, amounts to
$65 million and the total of allotments to operating components for local pro-
curement is $15 million, then $50 million would become a part of the Office
of Logistics Property Procurement Allotment. Returning to the analogy, the using
components have converted part of their property funds to a checking account
in the Office of Logistics "bank," which now has the money for investment in
property assets.
The second portion of the Office of Logistics Property Procurement Allotment
can also result from property budgets but is significantly different from the
larger portion in that it is not represented by PRA. A more detailed discussion
of the funding principle applying to this part of the Allotment appears later
in the section entitled "New or Replacement Inventory Items," so for the moment
these funds will be identified simply as those budgeted by technically-cognizant
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Offices for the purpose of establishing inventories, or for increasing the stockage
levels of items already in inventory.
Using the example of $50 million resulting from PRA-supported funds and
assuming, for the purposes of explanation, that an additional sum of $10 million
is budgeted by technically-cognizant Offices for inventory property, the Office
of Logistics Property Procurement Allotment would be established at $60 million.
This $60 million Allotment is used only by the Logistics System to replenish
warehouse inventory, to establish approved new inventory, and to procure
customer-requisitioned property which is not carried in inventory.
PRA AND THE OFFICE OF LOGISTICS PROPERTY PROCUREMENT
ALLOTMENT IN ACTION
The examination, thus far, has established the existence of two principles,
or two different administrative procedures-Property Requisitioning Authority
(PRA), and the Organization property procurement allotments (i.e., for manage-
ment purposes the Office of Logistics Property Procurement Allotment plus the
local procurement allotments equal the total property procurement authority of
the Organization). It is appropriate, at this point, to discuss briefly how these
two principles interact when a requisition is placed against the Logistics System.
As a general rule, when a component places a requisition for materiel on the
Logistics System, it reduces its PRA by the dollar amount of the requisition. The
Office of Logistics either issues the materiel from its stocks and uses dollars from
its Property Procurement Allotment to buy replacements on a planned and
scheduled basis, or it procures the materiel from a vendor and pays for it with
dollars from its Property Procurement Allotment.
An exception occurs when the requisitioning component is an element of the
Logistics System or an activity operating under Type I Financial Property
Accounting (FPA) procedures, and the materiel requisitioned is to be placed
in inventory by that component. In these instances, PRA is not affected until
the materiel is first requisitioned from the Logistics System or the Type I activity
by a user. It is possible, then, that a portion of PRA might not be charged until
some subsequent fiscal year when a requisition for issue is placed on the
Logistics System or the Type I activity.
Based upon the PRA/Office of Logistics Property Procurement Allotment
relationship under conditions of the general rule, it would appear that the proper
control of PRA by using components would provide sufficient funds to the Office
of Logistics to effect all necessary procurements and also permit the maintenance
of established stock levels. In practice, however, it does not work so smoothly,
and many problems surround the management of the Office of Logistics Property
Procurement Allotment.
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MANAGEMENT OF THE OFFICE OF LOGISTICS PROPERTY PROCUREMENT
ALLOTMENT
The management of the Property Procurement Allotment is the responsibility
of the Office of Logistics. Being an official allotment of funds, it places a dollar
limitation on that Office which it cannot exceed for the procurement of materiel,
just as PRA places a limitation on customer requisitioning. It is important to
emphasize, also, that the use of the Allotment is limited to the procurement of
customer-requisitioned and inventory property and cannot be directed by the
Office of Logistics to any other purpose.
For management purposes, the Allotment is divided by the Office of Logistics
into a portion for stock replenishment purposes and a portion for procurement
and direct issue of nonstock items. The ratio according to which the division of
the funds is made (generally in the neighborhood of 45/55) is determined from
experience and upon the recommendation of the Office of Logistics Budget and
Fiscal Officer. It is subject to some variation each fiscal year according to
customer materiel requirements and the ratio of stock replenishment procurement
to nonstock procurement in each materiel category.
The successful management of the Allotment is in direct proportion to each
component's ability to identify its property requirements by materiel category
and to provide detailed descriptions of requirements within each category.
Without this information, it is possible that one or more categories of materiel
could receive more, or less, emphasis than is really deserved in the stock
replenishment effort. With funds in limited supply, it is difficult to shift emphasis
among inventory categories once those funds have been committed to a given
replenishment pattern.
MANAGEMENT OF CURRENT INVENTORY
Management of the Office of Logistics Property Procurement Allotment
cannot be separated from the management of physical stocks themselves, which
is also the responsibility of the Office of Logistics. Certain guidance in the
management of technical items is provided by the components having technical
cognizance over the acquisition and issue of such items, particularly in the
decisions regarding what types and quantities of technical items will be carried
in inventory. To point up the critical relationship of fund management and
property management, let us assume that the issue trend of an item is upward
and, after review with the appropriate cognizant Office, it is determined that
its stock level should be increased. Funds of the Office of Logistics Property
Procurement Allotment then are spent to increase the level. Suddenly, the
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conditions which caused the rising issue trend no longer exist and the demand
for the item drops off dramatically or ceases entirely. The result is that funds
are tied up in idle inventory. To add to the problem, customer demand can,
and usually does, shift to another item; the issue trend moves upward for that
item; and levels need to be increased accordingly. Recall, however, that cus-
tomer PRA was not affected when funds were spent to build up the stock level
of the first item because PRA is not used until a customer orders an item.
Customers, therefore, are waiting with unencumbered PRA credit but the Office
of Logistics does not have a large enough supply of the currently popular product
to meet all of the demands. Additionally, that Office now has fewer funds with
which to procure it, since funds were invested in an item that no longer has
customer appeal. Considering that there are approximately 25,000 different items
in the stock system points up the necessity for a very precise supply management
program so that inventories will remain active and funds will remain in proper
supply.
Just as a funding problem arises when there is a shift in customer demand
for property items, still another is brought about when it becomes desirable or
necessary to establish new or replacement items in the inventory. For example,
let us assume that an item of operational equipment has been developed which
will serve the purposes of the Organization more effectively than one presently
in the inventory. The establishment of the initial inventory of the improved item
requires the use of Office of Logistics Property Procurement Allotment funds.
Ideally, the Office having technical cognizance over the item should have
provided for its inventory funding through prior budgeting for the item.
Under certain circumstances, funds for the establishment of initial inventories
are provided for separately in the budget. Carrying our example further, assume
that is the component which has primary interest in the item in ques-
tion. would indicate in its property budget that a given amount of
dollars is required to effect procurement of the improved inventory item and, if
this budgetary request is approved, the necessary funds would be added to the
Office of Logistics Property Procurement Allotment.
There is one major difference in this type of funding, however. Ordinarily,
an approved budget for property results in an equivalent amount of PRA being
authorized for the budgeting component, but in this instance PRA would not be
authorized to since the item being procured on the basis of its budget
request is not for its own use, but is to be placed in inventory to meet require-
ments of other components. PRA comes into being, then, when requirements are
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established for the item in the budgets of users. This type of funding arrange-
ment allows the Office of Logistics to introduce new and improved items into
the inventory without drawing down its regular Property Procurement Allot-
ment and without the creation of even larger customer "checking accounts"
against existing assets. To do otherwise would mean that procurement of the
improved item for inventory would have to come out of funds reserved for
regular stock replenishment with the result that some area of replacement would
have to be ignored or postponed because of insufficient funds.
As supply and equipment items are introduced into an existing inventory,
they are usually replacements for other items, or are items which will do a job
better than something that was available previously. The result is that the old
items become obsolescent, less attractive to customers, and can result in pockets
of idle inventory. One method of overcoming losses due to obsolescence is to
issue, whenever possible, the inventory of the obsolescent item prior to issuing
its replacement. A second method, and one which was authorized in Juno 1966,
is the use of a five percent override factor in the inventory pricing exercise.
This factor also makes some allowance for inventory losses due to selected price
increases, breakage, and spoilage while the items are stored and awaiting issue.
Unit prices of all inventory items are examined annually and adjusted to
conform with replacement prices. Individual price adjustments are also made
throughout the year whenever an acquisition price change occurs which would
have a significant impact on customer PRA. When urgency dictates, notification
of those price changes is accomplished by cables to overseas customers. All
of these pricing techniques are designed to strive toward a balance between
the Office of Logistics Property Procurement Allotment and the PRA of customers.
To complete the discussion on obsolescent and obsolete materiel, it should
be pointed out that inventory losses to the Agency do occur in spite of price
escalation factors and good supply management policies. When all efforts to
issue items through the normal customer requisitioning process have been
exhausted, the items are declared excess. First, they are offered to Organization
components at no cost, provided that the cost of such property was not included
in the operating budget or project approval of the component, and that the
issuance of the excess property is approved by the Office of Logistics. Any
quantities which remain after that are turned over to other Government agencies
for use or disposal. With the exception of automobiles and certain high-cost
machines and instruments, whose sale revenue can be applied toward the cost
of their replacement, normally there is no monetary return to the Office of
Logistics Property Procurement Allotment for disposal of excess items of inventory.
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SECRET
LOCAL PROCUREMENT FUNDS
The second, and smaller, segment of PRA is represented by local procure-
ment funds which are allotted to each component to procure property at overseas
installations or otherwise outside the Logistics System. These funds, since they
represent part of the property budgeted for use, are also subject to PRA. It
should be kept in mind, however, that the Office of Logistics is not the recipient
of these funds nor does it exercise any control over what materiel is procured
with them. Stated in other terms, the total amount of funded PRA each year
exceeds the amount of funds in the Office of Logistics Property Procurement
Allotment by the amount allotted to components for local procurement.
Funds for local procurement are distributed to component subelements
and field activities in amounts which the component at Headquarters believes
will be sufficient to satisfy their locally procured requirements. The subelement
or field activity uses these funds to pay for items acquired on the local open
market and accounts for the funds. The local procurement expenditure data
clear through the component Budget and Fiscal Officer, who maintains financial
records for his total area of responsibility. Throughout the operating budget
year, it is essential that responsible officers within each component keep alert
to requirements to reprogram their property funds, For example, they might
find that local procurement funds are being utilized at a lower rate than
anticipated. Upon investigation, they determine that planned acquisition of
property overseas by local procurement was overestimated and planned ac-
quisition from the Logistics System was underestimated, perhaps because of
changes in local conditions of operational requirements. In such an event, the
component should initiate action to have these excess local procurement funds
reallotted to the Logistics Property Procurement Allotment to cover the drain
on the Logistics System created by the shift in the procurement pattern.
The reverse situation is also possible. When it is determined that more
property will be procured locally than was provided for in the initial allotment
distribution, action can be taken to transfer funds from the Office of Logistics
Property Procurement Allotment to increase a component's local procurement
capability. In either event, however, the component's total amount of PRA would
not be changed, but its use would be changed to the extent that more, or less, PRA
would be devoted to requisitioning materiel from the Logistics System.
One other aspect of the property funding system which deserves discussion
is unfunded PRA, as distinguished from funded or budget-supported PRA. As
its name implies, there are no budgeted funds supporting this type of requisition-
ing authority and, consequently, its use is reserved for very special circumstances.
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Its primary current uses are:
a. In those instances when component parts are purchased or withdrawn
from stock for purposes of fabricating an item for a customer or for repairing
an unserviceable item.
b. When items are withdrawn from stock for testing and are destroyed
in the testing process.
The philosophy which supports the use of unfunded PRA in these instances
is rather straightforward. Under current procedures, when parts are procured
or withdrawn from stock, the PRA of the element receiving the parts is charged.
When the end-item is finally fabricated from those component parts and is issued
to a customer, the PRA of the customer is also charged with the value of the
fabricated item. The result is a double charge to total PRA. This, obviously,
would not be an acceptable practice if both charges were against funded PRA
since the element completing the fabrication of the item is not the using customer
but is only performing a service. The same principle applies to repair parts and
the eventual issue of the repaired and serviceable item to a customer. To avoid
double charges against funded PRA, Organization policy permits the use of un-
funded PRA for the initial procurement and issue, or stock issue, of parts to the
fabrication shop or service center. Therefore, the cost of the parts and other
appropriate charges arc recorded against funded PRA only once, i.e., against the
funded PRA of the using customer when the fabricated or repaired item is issued
to him.
Under the second circumstance, an unfunded PRA allotment is made to
the Office of Logistics each fiscal year and the cost of items consumed in testing
is charged directly to that account. This arrangement has been considered to
be particularly applicable in the area of ammunition testing, in which case
appropriate charges are made to the unfunded PRA account as ammunition is
consumed in test firing.
Normally, unfunded PRA is limited to the uses described above. There are
other and unusual circumstances where the unfunded PRA principle has been
applied, but the policies surrounding those instances have been developed on a
case-by-case basis. It is important to point out that the administration of
unfunded PRA, under other than normal circumstances, requires the exercise
of certain controls if a breakdown in the property funding system is to be avoided.
First of all, the unfunded PRA should be identified in an account separate
from the funded PRA and, secondly, the unfunded materiel should be requisi-
tioned immediately so that the unfunded PRA will be encumbered. Failing a
separation of the funded and unfunded PRA accounts, it is virtually impossible
to segregate and identify the property costs which are properly chargeable to
each. The problem is compounded if the materiel is not requisitioned since, on
paper at least, it appears that the component has available a large and un-
encumbered PRA. If this PRA is used to requisition materiel other than that
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planned for issue against the unfunded portion, the Office of Logistics Property
Procurement Allotment is placed in jeopardy just as it is in a climate of shifting
demand or the establishment of new inventories.
PRA and FPA
Two acronyms which are commonly used in logistical and financial discussion
and writing are PRA, which has been defined earlier, and FPA, which stands
for Financial Property Accounting. There often is a tendency to associate the two
when, in fact, they are separate and independent principles or functions.
PRA places a limitation on the dollar value of property which may be
requisitioned or purchased by a customer and it is budget oriented. FPA, on the
other hand, is the accounting system in which is recorded the dollar value of
acquisitions, issues, inventories, and disposals of property.
Turn-In of Property by Users
Another popular misconception of the property funding process surrounds
the turn-in of property when it is excess to a customer's needs, or is unusable,
and the belief that a credit is given which would increase the customer's available
PRA for use in requisitioning other items. To give a credit for property turned
in is not practicable since, for the most part, such items are obsolescent, in a state
of disrepair, are excess, or otherwise have a low utility value to other Organiza-
tion customers. Returning property is not completely negative, however. There
are circumstances when a customer may derive an indirect financial benefit from
the turn-in of nonexpendable property. Such property turned in, and required
at a later date, may be reissued without charge to PRA when all of the following
conditions are met:
a. The reissue is of the same property (line item) as was turned in and
reissue is to the same Financial Analysis Number (FAN Account) that
returned the property.
b. The reissue occurs within one year from the date on which the
property was turned in and the customer certifies that he has not budgeted
for it in the fiscal year during which it is requested to be reissued.
c. The turned-in property was not unserviceable or obsolete.
Depreciation of Property
Questions often arise regarding the pricing of used property and old
models of unused property. The feeling among many customers is that such
items should be issued at prices lower than the cost of their new replacements,
i.e., that the commercial practice of depreciation should be applied. This
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philosophy could be countered immediately by the fact that property budget
estimates are based upon the cost prices of new items and, therefore, issues
are made at those prices. Further, this technique would require the Organization
to establish depreciation formulas and schedules for each of its depreciable items,
establish extensive and detailed warehousing and recordkeeping systems, and
create an overwhelming cataloging and pricing problem. For these and other
reasons, the depreciation principle in stock funding is impracticable and, because
of its impracticability, the policy of the Federal Government limits its application
to plant equipment and to plants which operate under accrual cost accounting
and industrial funding systems.
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Graphically, the primary steps of the property funding process
are as follows:
BUDGET FOR
PROPERTY
TO BE USED
BUDGET FOR
INVENTORY
PROPERTY
LOCAL
PROCUREMENT
FUNDS
INVENTORY
ESTABLISHMENT
AND STOCK
REPLENISHMENT
OFFICE OF
LOGISTICS
PROPERTY
PROCUREMENT
ALLOTMENT
DIRECT
PROCUREMENT
AND ISSUE
When the initial estimates of local procurement and
Logistics System transactions need to be revised to
meet local conditions or operational requirements
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