Capital Asset Management For Cash Basis Governments

Capital Asset Management For Cash Basis Governments Washington Finance Officers Association 2011 Annual Conference Spokane, Washington C. Phillip Park...
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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

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