1301 Overview

This chapter establishes the Department of Veterans Affairs’ (VA) financial policies for determining and recording the value of internal use software (IUS).

Key points covered in this chapter:

• VA’s software development life-cycle aligns with the life-cycle presented in Federal Accounting Standards Advisory Board (FASAB) Statement of Federal Financial Accounting Standards (SFFAS) 10;
• VA will track, recognize, and report full (direct and indirect) costs related to the planning, development, and operation of IUS throughout the software life-cycle in accordance with the asset recognition and measurement provisions of SFFAS 6, SFFAS 10, and Technical Release (TR) 16 when accounting for IUS project costs; and
• VA will determine the useful life of an IUS asset for capitalization purposes based on the length of time the IUS is expected to have an economic benefit or service potential.

This chapter is not applicable to software required for the operation of equipment which should be capitalized as a component of the equipment.

1302 Revisions

Section	Revision	Office	Reason for Change	Effective Date
Various	Full Review	OFP	To ensure policy guidance is current and follows OFP template/format	November 2024
1303	Added SFFAS 10 definition of perpetual license, replaced Work in Process (WIP) with Software in Development (SID)	OFP	To ensure definitions reflect topics discussed in policy	November 2024
130503	Removed reference to Vol VI, Chapter 18 – Capital Lease Liability	OFP	Chapter was rescinded due to new lease accounting standard, SFFAS 54, which does not apply to IUS	November 2024
1306	Added 40 U.S.C. Subtitle III and links for other IT resources	OFP	To include IT related USC reference and resources	November 2024
Appendix D	Included steps to create FBC documents for labor and indirect costs for projects in the Build Stage and replaced SSV (standard voucher) with SEW (expenditure transfer) when recording indirect costs	OFP	To ensure Appendix has current iFAMS accounting guidance	November 2024

For a complete listing of previous policy revisions, see Appendix A.

1303 Definitions

Amortization – Refers to expensing the acquisition cost minus the residual value of intangible assets in a systematic manner over their estimated useful economic lives to reflect their consumption, expiration, obsolescence, or other decline in value as a result of use or the passage of time.

Assets – Tangible or intangible items which have economic benefits over multiple accounting periods.

Book Value – The net amount at which an asset or group of assets is carried on the books (also referred to as carrying value). It equals the capitalizable cost of an asset minus any depreciation or valuation amount.

Budget Object Class (BOC) Code – The lowest level of object class. BOC codes are required on all spending transactions to classify obligations and expenditures according to the nature of the services or items purchased.

Build Stage – This VA Product (Line) Accountability and Recording System (VA PARS) stage includes the creation/development of a package of product functionality, code, or components over a defined period. Builds occur in increments and include development, release preparation, and release. Builds can be for development, initial operational capability, testing, release, or other activities depending on the product type.

Bulk Software Purchase – A one-time acquisition of a quantity of software programs, or components of a total software system wherein the collective cost of the purchase is used to determine the accounting treatment rather than the individual price of each item.

Capitalizable Costs – Costs related to the asset which should be amortized over the asset’s estimated useful life.

Capitalize – To record an expenditure or contribution for a tangible asset which may benefit a future period as an asset rather than to treat the cost as an expense of the period in which it occurs.

Close/Transition Stage – This VA PARS stage occurs after final release of the IUS into production. This phase includes defect resolution (i.e., verification of defects, development and testing of patches and the release of patches into production). VA considers the start of the Close/Transition date as the cut-off for capitalization purposes.

Cloud Computing – Any service made available to users on demand via the Internet from a provider’s servers as opposed to being provided through an intranet or internet connection to a server owned by the organization. Cloud services are designed to provide easy, scalable access to applications, resources, and services, and are fully managed by a provider other than the using organization. Cloud computing services may include Infrastructure as a Service (IaaS), Platform as a Service (PaaS) or Software as a Service (SaaS).

Commercial Off-the-Shelf (COTS) Software – Software that is commercially produced and sold in a retail store or online, ready to use without any form of modification by the user, and accessible to everyone.

Component / Module – A component (module) is part of an asset or larger system. For example, an entity may develop an accounting software system containing three modules (i.e., general ledger, accounts payable sub-ledger, and accounts receivable sub-ledger).

Contractor-developed Software – Software VA paid a contractor to design, program, install, and implement. This includes both new software and the modification of existing or purchased software without substantive VA employee involvement beyond contract monitoring.

Development Phase – This phase in FASAB’s software life-cycle occurs when the design of chosen path, including software configuration, happens. In addition, coding of the software, installation to hardware, and testing are all included in this phase. Costs incurred during this phase are capitalized and amortized over the useful life of the software.

Direct Costs – Costs directly attributable to a specific project or task (e.g., direct involvement of individuals on an IUS project to include their materials and labor costs).

Enhancement – A renovation, expansion, alteration, change, or reconstruction of an existing asset to improve or enhance performance which may or may not increase the asset’s useful life.

Full Cost – Both direct and applicable indirect costs.

Gateway Review – A decision/approval point which occurs after a product’s planning is complete and before moving into the Build stage. The decision to proceed (or not), (i.e., approve/reject), is made by the Product Line Manager, to include determining that sufficient funding and contract or FTE resources exist.

Impairment – A significant event or change in operating circumstances that warrants reduction of the carrying value of an existing asset. An assessment should be performed to determine the remaining useful life of the impaired asset for amortization purposes.

Increment – The measurable period to deliver a package of product functionality, code, or components. Increments may be completed as quickly as the team is able but must not exceed three months.

Indirect Costs – Costs that are not directly attributable to a specific project or task. Indirect costs may be either fixed or variable. Indirect costs may include overhead costs as well as labor costs of a program management office responsible for overseeing more than one software project.

Internal Use Software (IUS) – Software that is developed internally, either with or without contractor assistance, solely to meet the Agency’s internal or operational needs. IUS includes contractor-developed software. Software includes application and operating system programs, procedures, rules, and any associated documentation pertaining to the operation of a computer system or program. Also referred to as Internally Developed Software.

Iteration – A timeframe during which development takes place. A process or step carried out to generate an outcome, the result of which can be used as the starting point for subsequent iterations.

Lean-Agile Software Development Method – A software development methodology in which requirements and solutions evolve through collaboration between self-organizing, cross-functional teams. In agile project development, software is developed in iterations that typically last one to eight weeks in duration. Initial planning regarding cost, scope, and timing is usually conducted at a high level, and the project status is primarily evaluated based on software demonstrations.

Net Realizable Value (NRV) – The estimated amount recovered from selling or any other method of disposing of an asset less estimated costs of disposal.

Object Class – Categorization of financial obligations and expenditures according to the nature of the services or items purchased as defined in Office of Management and Budget (OMB) Circular A-11, Section 83.

Obsolete Software – Software that is no longer required or no longer functional due to significant reduction in capability, function, or usefulness.

Operations Phase – This phase in FASAB’s software life-cycle occurs post-implementation of the software and may include preventative maintenance, ongoing training for users, and data conversion.

Overhead – Utilities, rent, repairs, maintenance, insurance, legal fees, travel expenditures, supplies, etc., essential to the overall accomplishment of a specific project but benefitting multiple projects at the same time.

Planning Phase – This phase in FASAB’s software life-cycle includes the development of the software requirements, conceptual formulation of alternatives, subsequent evaluation and testing of those alternatives, and final decision of a vendor to obtain commercial off-the-shelf software or to develop software internally.

Planning Stage – This VA PARS stage includes further development of the software requirements, conceptual formulation of alternatives, and final decision on a vendor to provide a commercial of-the-shelf software product or whether to develop software internally. Planning also includes ensuring a product is resourced correctly (e.g., funding, resources, and contracts).

Software in Development (SID) – Temporary holding account used to track costs during the Build stage of VA’s software life-cycle. Includes costs of direct labor, direct material, and overhead incurred in the development of IUS for which the agency will be accountable. The costs remain in the SID account until development is complete, at which point, the costs will be transferred as a capitalized asset to the proper capital asset account as the acquisition cost of the item.

Start-up Stage – This VA PARS stage occurs when OIT validates, analyzes, and confirms the request for new or enhanced IT capabilities. The stage includes researching viable solutions and developing and documenting the high-level business requirements using Agile methodology and tools.

VA Product (Line) Accountability and Reporting System (VA PARS) – A tool used to manage, monitor, analyze and report on VA’s IT software development. Use of VA PARS is mandated since it helps facilitate implementation of the Veteran-focused Integration Process (VIP) methodology and is the authoritative source for generating IT Business Case Details Submission to OMB.

Veteran-focused Integration Process (VIP) – VIP is a Lean-Agile Project Management Methodology (framework) that streamlines IT delivery oversight. VIP originated as a ‘project‐centric’ process that consisted of a series of phase‐gates which VA projects were required to meet as they moved through the System Development Lifecycle (SDLC). VIP is a legacy methodology which is currently being updated to industry standards. As identified in VIP Guide 4.0, VA is transitioning from project‐centric to product‐centric practices and is adopting Enterprise Lean‐Agile Frameworks. The phase gates have been discontinued and replaced by software development life-cycle stages. Use of the VIP for all software development is mandated by VA CIO.

VIP Stages – There are four stages of VIP: Start-up, Planning, Build, and Close/Transition. OIT classifies activities associated with development of IUS as occurring within one of the four defined stages based upon the activity type and when the activity occurs within the overall project timeline.

1304 Roles and Responsibilities

Office of Information and Technology (OIT) provides strategy and technical direction and guidance to ensure IT resources are acquired and managed for VA in a manner that implements various Federal laws and regulations, including the Clinger-Cohen Act and OMB Circular  A‑130. OIT provides Financial Services Center (FSC) with data necessary for capitalization, including but not limited to unique identifiers, direct labor cost, indirect labor cost, other indirect and overhead costs, and project status. OIT establishes and maintains standard operating procedures (SOPs) to account for IUS.

VA Assistant Secretary for Information and Technology and Chief Information Officer (VA CIO) is responsible for VA’s investments in, and the development and maintenance of, technology in accordance with the Clinger-Cohen Act of 1996 and Federal Information Technology Acquisition Reform Act (FITARA).

Financial Services Center (FSC) coordinates with OIT and IT Project and Program Managers to ensure all costs for IUS projects are appropriately captured and are reported in a timely manner. FSC staff review costs supplied by OIT and prepare the accounting system entries required to properly account for IUS.

IT Product and Program Managers provide timely information to OIT and FSC that accurately reflects the description, status, stage, useful life, project life-cycle cost, and critical decision points of the project. The IT Project and Program Managers maintain records of changes to existing IUS, and communicate to FSC their significance, expected effect, and cost to VA.

1305 Policies

130501 General Policies

1. VA will comply with 40 U.S.C. Chapters 111 and 113 for acquisition, management, governance, and oversight of IUS.
2. VA will recognize and report full (direct and indirect) costs related to the planning, development, and operation of IUS in accordance with the asset recognition and measurement provisions of SFFAS 6 and SFFAS 10.
3. VA will start amortization for an IUS project at the point when final acceptance testing is successfully completed (i.e., the conclusion of the developmental period).
4. Requests and obligations for costs associated with IUS projects to be capitalized will be assigned an appropriate BOC code. See Volume XIII, Chapter 2 – Budget Object Class Codes for current BOC codes. FSC will work closely with IT Product and Program Managers to ensure the appropriate BOC codes are assigned.
5. VA will comply with the financial reporting and disclosure requirements of OMB Circular A-136.
6. Should VA financial systems not be capable of reporting the necessary opening balances as required by GAAP for financial statement reporting, VA will rely on guidance established in SFFAS 50, TR 17 and TR 18 to identify opening balances for IUS.

130502 Software Life-cycle

1. For financial reporting purposes VA will follow SFFAS 10, TR 16, and TR 23, when accounting for IUS project costs.
2. VA will adhere to SFFAS 10, which stipulates three phases in the software life-cycle:
   1. Planning phase – includes those activities associated with the initial identification of functional requirements, conceptual design, evaluation of technical and acquisition alternatives, and formal executive approval for the project.
   2. Development phase – includes technical design, coding, installation, testing, and initial security accreditation and certification (to include component, unit, system integration, usability, quality assurance, and user acceptance testing).
   3. Operations phase – includes transition to operational activities, security reaccreditation and recertification, as well as ongoing operations and maintenance.
3. VA CIO has mandated the use of a Lean-Agile software methodology for product development.
4. The lean agile software methodology life-cycle includes four stages: Start-up, Planning, Build, and Close/Transition.
   1. VA aligns the four stages in VIP with the three phases stipulated by FASAB as follows:
      1. Start-up stage – all activities in this stage are included in FASAB’s Planning phase.
      2. Planning stage – all activities in this stage are included in FASAB’s Planning phase.
      3. Build stage – all activities in this stage are included in FASAB’s Development phase.
      4. Close/Transition stage – all activities in this stage are included in FASAB’s Operations phase.
   2. See Appendix E: Veteran-focused Integration Process (VIP) for more information on VIP.

130503 Capitalization

1. VA will capitalize the cost of an IUS project incurred during the Development phase, as defined by SFFAS 10, and amortize it over the solution’s useful life when:
   1. The software has an estimated useful life of 2 years or more;
   2. The total cost incurred in the software’s Development phase meets or exceeds VA’s capitalization threshold requirement of $1 million;
   3. The software has been acquired or constructed with the intention of being used or being available for use by VA; and
   4. The software is not intended for sale in the ordinary course of VA operations.
2. VA will not capitalize:
   1. Costs incurred in the Planning or Operations phases of the software life-cycle;
   2. Costs associated with training, regardless of whether the training is for a new project or recurring training;
   3. Costs for the mass production of user manuals, except for the initial cost of technical writing and publication which are capitalized;
   4. Projects with a total aggregate cost less than $1 million;
   5. Software with an estimated useful life less than 2 years; or
   6. Costs associated with data conversion, migration, and cleansing.
3. VA will determine and document the useful life of an IUS asset during the Planning phase of the project. Useful life will be based upon the length of time the IUS is expected to have an economic benefit or service potential. Legal, regulatory, or contractual provisions (e.g., obsolescence, provisions for renewal or extension altering a specified limit on useful life, effect of economic factors on reducing useful life, etc.) should be considered in the determining useful life. The determination of useful life should be made with input from personnel familiar with the software’s technical characteristics and its planned use.  
   1. VA limits IT Product and Program Managers to assigning one of the following useful life categories: 2-4 years, 5 years, 7 years, 10 years, 15 years, or 20 years. VA will not assign a useful life greater than 20 years. In making the decision on useful life, IT Product and Program Managers should apply the following criteria:
      • 2-4 years: Use when, due to rapidly changing technology, the application is considered an interim fix or that the developer is in the process of ending support for the product and the application is expected to be in service for two to four years.
      • 5 years: Use when an application is expected to be in service for more than four, but less than seven years.
      • 7 years: Use when an application is expected to be in service for seven to nine years.
      • 10 years: Use when an application is expected to be in service more than nine and less than twelve years.
      • 15 years: Use when an application is expected to be in service more than twelve and less than seventeen years. Potentially a legacy product expected to satisfy needs in the long-term.
      • 20 years: Use when an application is expected to be in service for seventeen years or more. To only be used for those projects which are expected to satisfy multiple long-term needs of the agency, and which potentially will be used in perpetuity.
   2. The useful life for software acquired or developed exclusively for research projects will be determined by the expected length of the research.
4. OIT is responsible for updating VA PARS weekly to identify the current project stage and key dates. This includes recording the Close/Transition start date and Project finish dates. FSC regularly monitors the progress and status of IUS projects in VA PARS and will proactively identify IUS projects nearing the scheduled Close/Transition start date. FSC will request information from OIT needed for capitalization purposes.
5. FSC, working with OIT, will reconcile the aggregate costs incurred during the Build stage to ensure the IUS project meets capitalization criteria. To ensure timely reporting, FSC will process all necessary accounting entries by the end of the month following the month in which the Close/Transition stage started.
6. In VIP, an iteration is treated as an individual IUS project. However, for purposes of capitalization, several dependent iterations developing a new or enhanced process or function will be grouped together and treated as one asset for capitalization purposes.
7. Software that is an integral part of equipment should be capitalized as a component of the equipment. In situations where software and the hardware on which it runs have independent service lives, VA will determine the useful life of the software independently of the useful life of the hardware. The rationale for this determination should be documented.
8. When a bulk software purchase meets the criteria for capitalization, VA will capitalize the total value of payments made to a vendor as well as, the internal costs incurred by VA to implement the software.
9. VA will capitalize payments to vendor(s) as well as internal costs incurred by VA to implement COTS and contractor-developed software when the solution meets the capitalization criteria. When VA purchases COTS or contractor-developed software as part of a package of products and services (e.g., training, maintenance, data conversion, reengineering, site licenses, and rights to upgrades and enhancements), VA will allocate the capitalizable and non-capitalizable cost of the package among individual elements based on a reasonable estimate of their fair market values. Costs that cannot readily be allocated between maintenance and relatively minor enhancements will be expensed.
10. If a cloud computing arrangement includes a perpetual software license, VA will account for the software license element of the arrangement consistent with the acquisition of other software licensing fees. Otherwise, VA will expense costs related to cloud computing as VA does not own the hardware and/or software, pays a recurring (e.g., monthly, quarterly, or annual) fee for the service, and the service will terminate once payment stops.
11. Capitalization of rental and/or licensing fees is dependent upon the terms associated with the rental, purchase and/or use. A perpetual license (i.e., a license with an upfront cost to use the software for its entire lifetime) will be capitalized when it meets the capitalization criteria established in this chapter. The cost could be charged as a one-time payment or financed over a set period of time. All other rental or license fee costs associated with IUS will be expensed in the period incurred.
12. For interagency and commercial shared services, where another Federal organization or non-Federal entity provides VA services, the provider will account for the software asset in accordance with their organization’s capitalization policies and VA will expense all related costs. However, if VA has the contractual right to take possession of the software at any time during the hosting period without significant penalty, it is feasible for VA to either run the software on its own hardware or contract with a third party to host the software, and the software meets the criteria for capitalization defined in this chapter, then VA will recognize the cost and capitalize the cost of the software. If the shared service arrangement includes a software license, VA will account for the software license element of the arrangement consistent with the acquisition of other software licensing fees.
13. Costs related to abandoned software development projects, or projects that are determined “not likely to be completed and placed in service,” will be expensed. Previously capitalized expenses will be recognized as a loss when the project is abandoned. The following are indications of an abandoned project:
    • Expenditures are neither budgeted nor incurred for the project;
    • Programming difficulties cannot be resolved on a timely basis;
    • Major cost overruns;
    • Information has been obtained indicating that the cost of developing the software will significantly exceed the cost of COTS software and management decides to obtain the product from the vendor instead of completing the project;
    • Technologies superseding the software product in development are introduced; or
    • The organizational component for which the product was being created is being discontinued.

130504 Enhancements

1. VA will capitalize the cost of enhancements to existing IUS, and related modules, when it is likely that the enhancements will result in significant additional functionality, and they meet the capitalization criteria.
2. VA will expense the cost of minor enhancements to existing IUS, and related modules, which do not meet the capitalization criteria, in the period incurred. Minor enhancements are those that are unlikely to result in significant additional functionality, regardless of the amount spent on the enhancement.

130505 Impairments and Removal of IUS

1. VA will recognize an impairment to existing IUS when either the software is no longer expected to provide substantive service potential and will be removed from service, or a significant reduction occurs in the functionality or uses of the software (or a module thereof). VA will appropriately calculate and recognize any loss at time of impairment and reduce the book value of the asset accordingly.
2. For IUS deemed obsolete and removed from use, VA will eliminate the asset’s acquisition cost and associated accumulated depreciation/amortization from the station’s account and will record the asset at its net realizable value (NRV). Any existing NRV should be transferred to an appropriate asset account until disposition occurs. Upon final disposal, the asset will be written off from the financial records.
3. If it is determined that existing IUS will be replaced with new software, the initial useful life established for the IUS being replaced will be reduced to the remaining period of use. VA will expense the unamortized cost of the old software when the new software has been successfully implemented.
4. Any additions to the book value or changes in useful life will be treated prospectively. The change will be accounted for during the period of the change and future periods.

130506 Tracking and Communication

1. To properly track and compare capitalizable costs, OIT and FSC independently and collectively track costs and communicate with each other on a regular basis (at least monthly). The information communicated will include, at a minimum, project unique identifier, project status, and project cost data.
2. IT Product and Program Managers will:
   • Record in VA PARS the Gateway Review approval date (i.e., the change in project status from Build to Close/Transition) and the start of the Close/Transition within three business days of their respective occurrences;
   • Monitor IUS project costs and implement controls to identify and track costs for comparison to the associated budget;
   • Ensure that all obligating documents entered contain the appropriate unique project identifier and the proper accounting string (i.e., fiscal year, fund, cost center and BOC code);
   • Maintain a labor distribution schedule for VA employees working on each project;
   • Review and reconcile the salary cost reports to identify any errors or other anomalies and notify FSC of these discrepancies and how to correct them prior to the issuance of the next scheduled report; and
   • As part of the annual asset inventory process, conduct a review of all IUS assets included on the EIL Inventory report to determine whether an IUS asset has become obsolete.
3. OIT will:
   • Advise VA staff on VA CIO-mandated project/product management methodology and maintain VA PARS;
   • Assign unique project identifiers;
   • Ensure that all obligating documents entered contain appropriate unique project identifier and proper accounting string (i.e., fiscal year, fund, cost center and BOC code);
   • Furnish FSC with direct salary costs by project;
   • Develop and maintain the formula(s) for calculating indirect overhead to be applied to projects; and
   • Provide monthly indirect labor and budget for IT activities to the FSC.
4. FSC will:
   • Identify individuals responsible for monitoring and recording capitalized costs of internal use software projects to work with the OIT and the IT Product and Program Managers;
   • Maintain a tracking tool (e.g., a spreadsheet) which provides descriptive data (i.e., current stage, transition dates, and overall description) and costs incurred by project;
   • Compare the information provided by OIT to transactions in the accounting system of record to ensure accuracy prior to actual capitalization of software action;
   • Return to the requestor obligating documents coded to capitalizable IUS BOC codes without project numbers, as well as obligating documents with project numbers not coded to capitalizable BOC codes;
   • Allocate direct salary costs by project to the related IUS project’s Software in Development (SID) account;
   • Properly allocate, on a consistent basis, all overhead and other indirect costs to the related IUS project’s SID account;
   • Supply OIT with a report detailing the allocation of monthly indirect costs, by project;
   • Ensure the IUS project meets VA capitalization criteria when completed;
   • Perform reconciliations of the IUS SID account by project identifier, research items as necessary, and capitalize or expense the items no less than monthly based on the research; and
   • Develop analytical procedures to assess the reasonableness of the IUS balance in United States Standard General Ledger (USSGL) account 183200, Internal-Use Software in Development.

130507 Accounting for Internal Use Software (IUS)

1. VA will adhere to the requirements of SFFAS 10, TR 16, and TR 23 when accounting for IUS project costs.
2. VA will record the full cost of each IUS project throughout the software life-cycle and ensure costs are appropriately reported. See Appendix B: Examples of Capitalized Costs for examples of project costs which should be recorded.
3. VA will record the full cost, direct and indirect, of an IUS project incurred during the Development phase in USSGL account 183200 using specific BOC codes.
   1. Direct costs, including labor for project teams (e.g., programmers, engineers, managers), will be consistently tracked, allocated and capitalized as part of the costs of the individual software projects.
   2. VA will allocate and capitalize indirect costs, which include overhead and costs of administrative and security personnel, as part of the costs of the individual software projects. Allocation of indirect costs to each individual software project will be based on a methodology that is both documented and auditable.
4. OIT will define a standardized naming convention for IUS projects and assign unique identifiers for each IUS project in VA PARS that will be tied to an iFAMS generated Asset Number and an OIT Project Code. IT Product and Program Managers will use the unique identifiers (VA PARS ID) when establishing obligations and allocating costs to projects.
5. FSC will use the VA PARS ID and the iFAMS Asset Number and OIT Project Code to record and accumulate all costs by project.  This includes vendor invoice payments, accruals, SV journal entries, direct labor, indirect costs, etc.
6. FSC will reconcile USSGL account 183200 during the end of the accounting month reconciliation process and capitalize projects as required. See Appendices C and D for information on how to record IUS costs in VA’s accounting system.
7. All costs associated with the development (design, building, and documentation) of the software will be identified throughout the life of the project, when management authorizes and commits to an IUS software project or enhancement and believes that it is more likely than not that the project will be completed and the software will be used to perform the intended function with a useful life of two years or more.
8. When the Development phase is successfully completed, capitalized software will be systematically amortized over its useful life. See Appendix C and Appendix D: Recording IUS Costs, for additional guidance on tracking costs.

130508 Documentation for Financial Reporting and Disclosure

1. FSC, OIT, and each VA Administration and Staff Office will maintain records related to IUS assets.
2. Electronic or hardcopy documentation will be maintained for both capitalized IUS-related actions and expensed non-capitalized activities. Documentation will be maintained for the life of the asset and for three years after disposal or transfer of the asset, as required by VA’s Records Management Directives and Handbooks (6300 series) and the applicable National Archives and Records Administration (NARA) General Records Schedules (GRS). Documentation should support the cost of each asset, the Close/Transition stage start date, the useful life of the asset, and any subsequent enhancement, impairment or removal from service which has impacted the recorded value of the item.

1306 Authorities and References

• 40 U.S.C. Subtitle III: Information Technology Management
• Clinger-Cohen Act of 1996
• Federal Information Technology Acquisition Reform Act (FITARA)
• Making Electronic Government Accountable By Yielding Tangible Efficiencies Act of 2016
• Federal Accounting Standards Advisory Board (FASAB) Handbook by Chapter
  • Statement of Federal Financial Accounting Standards (SFFAS) 6, Accounting for Property, Plant, and Equipment
  • SFFAS 10, Accounting for Internal Use Software
  • SFFAS 50, Establishing Opening Balances for General Property, Plant, and Equipment: Amending Statement of Federal Financial Accounting Standards (SFFAS) 6, SFFAS 10, SFFAS 23, and Rescinding SFFAS 35
  • Technical Release (TR) 16, Implementation Guidance for Internal Use Software
  • TR 17, Conforming Amendments to Technical Releases for SFFAS 50, Establishing Opening Balances for General Property, Plant, and Equipment
  • TR 18, Implementation Guidance for Establishing Opening Balances
  • TR 23, Omnibus Technical Release Amendments 2024: Conforming Amendments to Technical Releases 10, 16, 20, and 21
• Office of Management and Budget (OMB) Circulars
  • OMB Circular  A-11, Preparation, Submission, and Execution of the Budget
  • OMB Circular  A-130, Management of Federal Information Resources
  • OMB Circular  A-136, Financial Reporting Requirements
• Treasury Financial Manual (TFM) Volume 1, Part 2, Chapter 4700, Agency Reporting Requirements for the Financial Report of the United States Government
• VA Financial Policy Publications
  • Volume V, Chapter 9 – General Property, Plant, and Equipment
  • Volume XIII, Chapter 2 – Budget Object Codes
• VA Office of Information and Technology (OIT), Software Product Management Hub (SPM)
• VA Product Line & Accountability Reporting System (VA PARS) Community Workbench
• National Archives Record Management Information Page, General Records Schedules

1307 Rescissions

 Volume V, Chapter 13 – Accounting for Internal Use Software, April 2023.

Appendix A: Previous Policy Revisions

Section	Revision	Office	Reason for Change	Effective Date
1303 Definitions	Modified definition of VA phases and software to updated stages and software	OFP	Change in software development methodology and associated terminology approved by VA CIO	April 2023
1305 Policies	Modified language surrounding VA phases to updated stages           Updated reference to IUS project management software   Added detail about how IUS costs are tracked in VA’s financial systems	OFP	Change in software development methodology and associated terminology approved by VA CIO   Replacement of VIP Dashboard with VA PARS	April 2023
Appendix A	Moved previous revisions to Appendix A	OFP	To align with policy format	April 2023
Appendix B	Modified language surrounding VA phases to updated stages	OFP	Change in software development methodology and associated terminology approved by VA CIO	April 2023
Appendix D	Added Appendix entitled Recording IUS Costs – iFAMS	OFP	To provide iFAMS guidance for recording IUS costs	April 2023
Appendix E	Updated references to VA CIO mandated methodology and responsible offices	OFP	Change in software development methodology and associated terminology approved by VA CIO	April 2023
1301 Overview	Update useful life definition to match PP&E definition	OFP	Align with SFFAS 6	February 2020
1305 Policies	Update useful life definition to match PP&E definition	OFP	Align with SFFAS 6	February 2020
Appendix D	Moved previous policy revisions table to an appendix	OFP	Improve readability	February 2020
1303 Definitions	Added definitions for Veteran-focused Integration Process (VIP) and its four specific phases (Initiation, Project, Product, and Close-out), development phase, operations phase, planning phase, internal use software (IUS), and obsolete software   Updated definition of internally developed software	OIT (005F)	Improve clarity	March 2019
1304 Roles and Responsibilities	IUS Product and Program Managers changed to IUS Project and Program Managers	OIT (005F)	Align with OIT procedural guidance	March 2019
1305 Policies	Added data migration to the list of non-capitalized costs   Modified useful life and added table providing criteria for assignment of useful life   Clarified guidance on management of obsolete software   Added requirement for annual inventory to responsibilities for IUS Project and Program Managers	OIT (005F)	Improve clarity and align with OIT procedural guidance	March 2019
Various	Reformatted to new policy format and completed 5-year review	OFP (047G)	Reorganized chapter layout	January 2018
Various	Changed Volume and Chapter from Volume III, Chapter 10 to Volume V, Chapter 13	OFP (047G)	To categorize the chapter with other Asset chapters	January 2018
1303 Definitions	Added, removed, and modified definitions previously included	OFP (047G)	To add clarity	January 2018
1304 Roles and Responsibilities	Added responsibility for OIT to maintain an IUS standard operating procedure (SOP) and working group	OFP (047G)	To address Notice of Findings Report (NFR) VA 15-1, Financial Reporting	January 2018
1305 Policies	Added language for use of reasonable estimates and revaluing previously reported assets as authorized by FASAB SFFAS No. 50	OFP (047G)	FASAB updated guidance	January 2018
1305 Policies	Updated dollar threshold for capitalization of IUS to $1 million and 4 years or more (NTE 20 years)	OFP (047G)	Update to VA’s threshold	January 2018
1305 Policies	Emphasized tracking and recognition of full cost   Defined VA’s Development phase	OFP (047G)	To address NFR VA 15-1 and 16-4, Financial Reporting	January 2018
1305 Policies	Clarified accounting for cloud computing, services made available by a non-VA provider	OFP (047G)	Updates to reflect change in technology	January 2018
1306 Authorities and References	Added FASAB SFFAS 50, TR 16 and TR 17   Removed FASAB SFFAS 35 and TR 5	OFP (047G)	FASAB updated guidance	January 2018
1306 Authorities and References	Added OIT EPMO VIP Business Office SharePoint	OFP (047G)	Reference to VIP Guide	January 2018
1308 Questions	Added POC for NCA and FSC	OFP (047G)	Ensure appropriate contacts are listed	January 2018
Appendix A	Added Appendix A	OFP (047G)	Provides additional guidance on VIP	January 2018

Appendix B: Examples of Capitalized Costs

1. Examples of capitalized costs for internally developed software projects:
   1. Salaries and fringe benefit costs, including overtime, for all personnel directly involved in the project. Such personnel include project managers, analysts, programmers, and testers.
   2. Outside consulting fees.
   3. Rent directly associated with the project.
   4. Supply costs from the Build stage.
   5. Hardware, if procured specifically for the project and not part of the existing infrastructure.
   6. Documentation, including technical writing, on-line help, and production costs of user manuals created during the Build stage to document the system, if printed.
2. Examples of capitalized costs for COTS software projects:
   1. Amount paid to vendor(s) for the application, modification to COTS design, testing, and related costs.
   2. Costs of space and/or supplies if vendor is housed on-site.
   3. Hardware to operate the new software if separate and apart from existing infrastructure.
   4. Cost incurred to implement the software, including travel, project management, and management oversight.
   5. Where a vendor has bundled software with maintenance services, the cost should be allocated based on a reasonable estimate. If the software meets capitalization criteria, it should be capitalized in the general ledger (maintenance services should always be expensed). If the cost of the maintenance included in the vendor’s quote cannot be reasonably estimated, and most of the cost appears to meet capitalization criteria, capitalize the entire purchase.
      
3. Examples of capitalized costs for contractor-developed software projects:
   1. Amount paid to the contractor(s) for design, program, testing, and related costs.
   2. Cost incurred to implement the software, including travel, project management and management oversight.
   3. Cost of space or supplies if contractors are housed in on-site.
   4. Hardware to operate the new software if separate and apart from existing infrastructure of the VA.
   5. Direct agency costs incurred to implement the software, including travel, project management, and management oversight.

Appendix C: Recording IUS Costs – FMS

In this section, BOC codes for the legacy financial system, FMS, are listed.  

1. All contractor Planning phase costs of IUS will be recorded to BOC code 2515. Internal full-time equivalent (FTE) salaries and other costs will be posted in VA’s accounting system of record with the BOC code relevant to the reason for the costs (e.g., salaries and benefits are posted in the 11 and 12 BOC code series).
2. When a project enters the Build stage, all costs identified as a contractual service for internally developed software will be entered as an obligation using BOC code 3124. Costs associated with COTS software should be entered as an obligation using BOC code 3132. FSC will ensure the project number is appropriately recorded within the obligation document to allow costs to be automatically tracked and assigned to the related IUS SID project as payments are issued.
3. Salary and benefits costs will be identified by a project number and transferred into USSGL account 1832 using the proper transaction in the accounting system of record.
4. FSC will allocate indirect costs to each qualified IUS project. These costs will be identified by a project number and transferred into USSGL account 1832 using the proper transaction in the accounting system of record. In the event indirect costs are determined to be immaterial when compared with the overall costs of a software project, FSC will expense the costs in the period incurred. FSC and OIT will ensure decisions regarding the materiality of indirect costs will be justified and properly documented.
5. The costs of an IUS project recorded in USSGL account 1832 which do not meet the capitalization criteria after completion of the project will be expensed.
6. For costs incurred prior to a decision being made to authorize and commit to the project VA will use BOC code 2515. VA will use BOC code 3134 for IUS which does not meet the Department’s capitalization criteria.
7. For costs incurred after the decision is made to authorize and commit to the project VA will use BOC code 3124 for internally developed software, or BOC code 3132 for COTS software. On-going maintenance and operational costs for a system are recorded using the following BOC codes: 2507 through 2513 (See Volume XIII, Chapter 2 – Budget Object Class Codes and its associated appendices for definitions).
8. The following transaction will be used to recognize a loss (write-off) for software costs incurred in prior fiscal years not capitalized:

Debit	USSGL Account Description	Credit	USSGL Account Description
7210	Loss on Disposal/Write-off PP&E	1832	Internal Use Software in Development

9. VA will use the following transaction to recognize the expense for software costs incurred in the current fiscal years that were not capitalized:

Debit	USSGL Account Description	Credit	USSGL Account Description
6100	Operating Expenses	1832	Internal Use Software in Development

10. When VA’s management commits to an IUS project, the following guidance should be followed to ensure proper accounting for IUS obligations and costs as the related projects proceed toward completion:
    1. Project obligations will be reviewed prior to final obligation to determine the appropriate BOC code. Costs associated with internally developed software will use BOC code 3124 and COTS software will use BOC code 3132. If the obligation identifies specific costs which are not subject to capitalization those potential costs will be assigned an appropriate non-capitalized BOC when obligated. Costs associated with sustainment activities will use BOC 2510. Costs associated with Annual Software Licenses will use BOC 2324. Costs associated with Data Migration/Conversion will use BOC 2515. FSC will consult with EPMO Budget Analysts and/or the Project Managers regarding any questions on the BOC.
    2. The IUS project’s unique identifier should be recorded at least once on the obligation, either the 2237 funding document or the purchase order. In this way, obligations and costs will be accumulated and can be analyzed to determine their proper accounting treatment. If an obligation does not contain the unique identifier on one of these documents, FSC will return obligations for correction to contracting and communicate confirmation of the project identifier with budget to verify the unique identifier.
    3. If it is subsequently determined that the cumulative obligations entered into BOC code 3124 or 3132 for an IUS project will not meet the capitalization criteria, proceed as follows:
       1. For costs incurred in the current year, the project’s cumulative costs in BOC code 3124 or 3132 will be transferred to BOC code 3134 using a journal voucher. Any costs entered into USSGL Account 1832 will be reversed and expensed to USSGL Account 6100, Operating Expenses.
       2. For costs incurred in prior years,  FSC will recognize appropriate losses by processing a single journal voucher in the accounting system of record to remove all associated costs from USSGL 1832.

Appendix D: Recording IUS Costs – iFAMS

1. All contractor Planning phase costs of IUS will be recorded to BOC code 251304, System Tech Support Svcs for Internally Developed Software. Internal full-time equivalent (FTE) salaries and other costs will be posted in VA’s accounting system of record with the BOC code relevant to the reason for the costs (e.g., salaries and benefits are posted in the 11 and 12 BOC code series).
2. When a project enters the Build stage, all costs identified as a contractual service for internally developed software will be entered as an obligation using BOC code 310411, Internal Use Software (Internally Developed) – Cap. Costs associated with COTS software should be entered as an obligation using BOC code 310401, Internal Use Software (Purchased) – Cap. FSC will ensure the project number is appropriately recorded within the obligation document to allow costs to be automatically tracked and assigned to the related IUS  project as payments are issued.
3. Once an obligation/award is submitted and approved, a Fixed Asset Submitter must create a FAE Fixed Asset Acquisition) document with an asset type of SID (Software in Development) and reference the specific lines of the award/obligation with the capitalized BOCs. The Payment Update Acquisition Cost (PUAC) and Accrual Update Acquisition Cost (AUAC) flags must be checked if referencing an award/obligation so that any payment or accrual will update the SID amounts on the FAE.
4. In cases where there isn’t an obligation/award when a project enters the Build stage, an FAE document will still be created.  Subsequent obligations/awards will be added utilizing a FBC (Asset Additional Costs) document.
5. Upon the creation of the SID FAE, a fixed asset number will be auto generated or manually assigned by the user. The IUS project identifier can be referenced in the FAE’s Title and Description fields for tracking and identification on the SID report.
6. Upon the creation of the FAE document, FBC documents will be processed for recording direct labor and indirect costs.  Each FBC will have a betterment number corresponding to the Fund, BBFY, EBFY of existing FBC documents.
7. Salary and benefits costs will be identified by a project number/betterment and transferred into USSGL account 183200, Internal-Use Software in Development, using the proper transaction in the accounting system of record.
8. To record salary and benefits, the Fixed Asset Submitter must process an SEW (expenditure transfer) document  in IFAMS. This SEW  will need to reference the fixed asset number and betterment from the SID asset on the Fixed Asset tab of the SEW document.
9. FSC will allocate indirect costs to each qualified IUS project. These costs will be identified by a project number and transferred into USSGL account 183200 using the proper transaction in the accounting system of record.
10. To record indirect costs, the Fixed Asset Submitter must process an SEW document in IFAMS. This SEW  will need to reference the fixed asset number and betterment from the SID asset on the Fixed Asset tab of the SEW document. In the event indirect costs are determined to be immaterial when compared with the overall costs of a software project, FSC will expense the costs in the period incurred. FSC and OIT will ensure decisions regarding the materiality of indirect costs will be justified and properly documented.
11. The costs of an IUS project recorded in USSGL account 183200 which do not meet the capitalization criteria after completion of the project will be expensed. To expense the amount accumulated in SID, the Fixed Asset Submitter must process an FDE (Fixed Asset Disposition) document referencing the SID fixed asset number. This will expense the amounts previously recorded under 183200 and remove the SID asset document.

Debit	USSGL Account Description	Credit	USSGL Account Description
610000	Operating Expenses	183200	Internal Use Software in Development

12. The Fixed Asset Submitter will process an FDE document referencing the SID fixed asset number and use the following transaction to recognize the expense for software costs incurred in the current fiscal years that were not capitalized:

Debit	USSGL Account Description	Credit	USSGL Account Description
610000	Operating Expenses	183200	Internal Use Software in Development

13. When VA’s management commits to an IUS project the following guidance should be followed to ensure proper accounting for IUS obligations and costs as the related projects proceed toward completion:
    1. Project obligations will be reviewed prior to final obligation to determine the appropriate BOC code. Costs associated with internally developed software will use BOC code 310411 and COTS software will use BOC code 310401. If the obligation identifies specific costs which are not subject to capitalization those potential costs will be assigned an appropriate non-capitalized BOC when obligated. Costs associated with sustainment activities will use BOC 251301, 251302, and 251303. Costs associated with Annual Software Licenses will use BOC 233102. Costs associated with Data Migration/Conversion will use BOC 251304. FSC will consult with EPMO Budget Analysts and/or the Project Managers regarding any questions on the BOC.
    2. The IUS project’s unique identifier should be recorded at least once on the obligation. In this way, obligations and costs will be accumulated and can be analyzed to determine their proper accounting treatment. If an obligation does not contain the unique identifier on one of these documents, OIT will return obligations for correction to contracting and communicate confirmation of the project identifier with budget to verify the unique identifier.
    3. If it is subsequently determined that the cumulative obligations entered into BOC code 310411 or 310401 for an IUS project will not meet the capitalization criteria, proceed as follows with the FDE document:
       1. For costs incurred in the current year, the project’s cumulative costs in BOC code 310411 or 310401 will be transferred to BOC code 310402 using a journal voucher. Any costs entered into USSGL Account 183200 will be reversed and expensed to USSGL Account 610000, Operating Expenses.
       2. For costs incurred in prior years, the FSC will recognize appropriate losses by processing a single journal voucher in the accounting system of record to remove all associated costs from USSGL 183200.

Appendix E: Veteran-focused Integration Process (VIP)

1. The Office of Information and Technology (OIT), Development, Security and Operations (DevSecOps) is responsible for providing the support for processes and tools so OIT can implement IUS projects at VA. Projects or products that touch VA’s network or spend money from VA’s IT appropriation or any other appropriation, will use Veteran-focused Integration Process (VIP) to plan, develop, and implement IUS.
2. VA uses VIP to increase the speed of delivering high-quality, secure, sustainable IT capabilities to Veterans. Product Lines and Service Lines are required to collect and report costs, scheduled, risks and other valuable product information in the VA Product (Line) Accountability and Reporting System (VA PARS), formerly known as the VIP Dashboard. VA PARS is used by VA Management to:
   • Assist the governance process of VA’s IT investments in achieving their intended outcomes on time and within budget while also meeting Veterans’ needs;
   • Support VA’s mission and business objectives, and offer the appropriate security and privacy protections; and
   • Conform to legislative mandates and OMB requirements for IT investment management.
3. The DevSecOps, Agile Center of Excellence (ACOE) publishes the VIP Guide to provide the governance and guidance that Product Lines and Product Managers follow for successful IT product delivery within VA. The VIP Guide serves as companion guide to the Product Line Management (PLM) Playbook and is used as a reference for VIP policies, definitions, and procedural regulations for VA, OIT and DevSecOps community.
4. More information on VA PARS is available on DevSecOps ACOE’s SharePoint site (intranet). See the Authorities and References section of this chapter for the link.