Capital Asset Management For Cash Basis Governments Washington Finance Officers Association 2011 Annual Conference Spokane, Washington C. Phillip Parks, CPA Assistant Audit Manager Local Government Support Team
Overview Cash basis BARS update Definitions Capital asset transactions Capital asset management system Federal tracking requirements
CASH Basis BARS Update New section – capital assets management Cash basis manuals lack asset guidance Requests for capital asset section Discusses:
Policies and procedures
Tracking requirements Federal requirements
Need to meet accountability requirements Many entities already are tracking
Definitions Capital assets Capitalize Capitalization threshold Accountability Capital asset management system Physical inventory
Capital Asset Transactions Report cash inflows and outflows Purchase asset – use capitalization threshold If at or above threshold, capital expenditure If below threshold, operating expenditure
BARS account codes 594.xx.xx or 595.xx.xx Do not use a depreciation account Disposal of capital asset – 395.xx.xx Must track assets between purchase and disposal
Management Requirements Capital asset policies Written rules for monitoring assets Approved by the governing body Tracking system Application of the policies – actual procedures Collects and updates capital asset information Demonstrates accountability for capital assets Physical Inventory verifies existence of assets
Capital Asset Policies Need to develop and approve policies Complexity depends upon funding sources and types of assets Set a capitalization threshold Amount when asset is classified as capital asset Cost benefit : $500? $10,000? Federal government uses $5,000
Custody – answers questions What property does the government own? Where is it? What condition is it in? Who is responsible for it?
Capital Asset Policies Insurance Records to document value Confirm validity of condition and use Reporting timeliness if misappropriation occurs
Maintenance and repair Demonstrate stewardship Ensure resources are used efficiently Expectation to keep in working condition
Capital Asset Policies Planning Evaluation of current use Determine replacement intervals Need for additional assets Surplusing/ disposition of assets
Small and attractive assets Description and list of assets Location Monitoring method and protection from loss
Capital Asset Policies MRSC is a source for example policies www.mrsc.org Research tools/sample local documents/policy and procedures Example: City of Colville Capital assets (fixed assets) Small and attractive items Thanks to: Holly Pannell, City Clerk Vicky Strong, City Treasurer
Tracking System Adhere to formal asset policies Inventory list of assets Individual asset information Location – identifying number Historical cost/ funding source Estimated life Condition Disposal date/disposal valuation
Tracking System Maintain control over asset additions and deletions Assign and document responsibility for assets Track changes in custody Reconcile inventory listing to physical inventory Reconcile inventory listing to individual asset records Update asset records with physical inventory Computerized or manual
Physical Inventory Must verify existence, location and condition of assets Frequency based on type of assets and needs Adhere to policy and external requirements Assets purchased with federal money two years Loaned federal property every year Counties not a physical inventory, just the updated list (RCW 36.32.210) Update asset list and individual asset records Need to follow-up on discrepancies
Federal Common Rule Equipment and real property Title vests with non-federal entity Federal strings stay attached Federal government has specific tracking requirements
Equipment – life more than one year – cost greater than $5,000 – unless threshold is lower Equipment may not meet definition, however, grantor may still have tracking requirements Small and attractive assets
Federal Common Rule Use of equipment and real property Use in original federal project or program Other federal projects or programs allowed Disposition trigger – not used in federal project
Disposition – Common Rule , section 32(e) Current per unit FMV less than $5,000 – no further obligation to grantor Current per unit FMV in excess of $5,000 – awarding agency right to share of proceeds
Disposal of Equipment FMV < $5,000 at time of disposal:
FMV > $5,000 at time of disposal:
Item can be kept or sold by grantee.
Ask your grantor for instructions.
No further obligation of the federal grantor agency.
Federal grantor gets a portion of the proceeds or its share of the value of the asset.
* Document fair market value determination
Equipment and Records Management Common Rule, section 32(d) – specific asset records are required Whether asset acquired whole or in part with grant funds Maintain records until disposition Need to retain to meet archives standards Compliance area – specific compliance and internal controls
Federal Equipment Requirements Individual property records containing: Description of property Serial number or other identifying number Source of property Title holder Acquisition date Original cost and percentage federal participation Location, condition and use Date of disposal/ sale and sales price
Federal Equipment Requirements Physical inventory taken and reconciled with property records every two years Control system must be developed with adequate safeguards to prevent loss, damage or misappropriation All losses, damage or misappropriations will be investigated Adequate maintenance procedures to keep property in good condition Proper sales procedures to ensure highest possible return on disposal
Federal Equipment Requirements Loaned Federal Equipment Title remains vested with Federal Government Manage with Federal Agency Rules Submit an annual inventory listing No longer needed - request disposition instructions from Federal agency
Supplies (not in BARS – grant requirement) If residual inventory exceeding $5,000 contact awarding agency Federal sponsor entitled to it’s share
Federal Property Requirements Real Property – Land or Buildings Must maintain individual property record Must use for original purpose Can not dispose of or encumber title
Disposal – no longer used for original purpose Must request disposition instructions from grantor Options Retention of title Sale of property Compensate agency for their share (on FMV)
Auditor expectations Accountability audits Safe guarding of public resources Inventory lists – tie to assets in field Verify existence of asset policies May examine both capital assets and small and attractive assets Do you have a system to protect your assets? Can you tell if a specific asset is missing or damaged and who is responsible?
Auditor expectations Single Audit – increased scrutiny Compliance area will be tested if it is direct and material Expect examination for both specific compliance and internal controls Maintenance of property records Maintenance of property and equipment Physical inventory Use of asset is in federal programs Compensation of awarding agency on disposition
Asset Issues Change in capitalization threshold Prospective treatment (only new) Retroactive (removal of old) optional
Surplusing of assets Recommend policy State laws for many entities State Constitution – Article 8 section 7 prohibits gifting of public funds Restricted resources
Audit Issues Valuation of capital assets Historical cost Fair market value on the date of donation
Resources spent on assets: capitalize or repair? Must consider: Increase efficiency or usefulness Increase life Bring back to original condition
Questions?
State Auditor’s Office Contacts Accounting and Auditing HelpDesk http://www.sao.wa.gov/EN/Audits/Pages/ LocalGovHelpDeskDisclaimer.aspx Phillip Parks Local Government Support Team Washington State Auditor’s Office
[email protected] (360) 725-5595