Updating Capital Asset Records Michael M. Nielsen Government Fixed Asset Services, Inc. Long Beach, Indiana 46360-1712 (219) 221 6147 nielsen@fixedassetservices.com

Updating Capital Asset Records Great Plains Government Finance Officers Association 2014 Fall Conference Omaha, Nebraska October 22, 2014

Preview of session discussion points Annual additions and retirements of capital assets Monitoring v. maintaining capital asset records Timeline Minor but sensitive items Addition and retirement inclusions Addition and retirement responsibility Addition and retirement information sources … for financial reporting only Construction-in-progress

Annual additions Can be a challenge Only assets at or above capitalization threshold (a separate and increased amount for building and general infrastructure improvements) Assets must meet criteria of an improvement Department must understand capital additions v. repairs and maintenance No capitalization of groups of minor assets

Annual retirements Data may be difficult to establish centrally Data may be incomplete and include only trade-ins but not items scrapped or disposed of at departmental level Communication problems Departments unable or unwilling to determine retirements Often … simply report ’no retirements’ and over time this can lead to overstated balances

Annual retirements Lack of understanding of importance of accounting for capital assets Lack of understanding of process Lack of interest or motivation Departments too busy Not their responsibility

Monitoring capital asset records To do … Plan to periodically check integrity of entire database for both property accounting and property control An ‘iterative process’ Large assets (buildings, general infrastructure) may need to verify existence only

Monitoring capital asset records To do … Monitoring of land parcels, land improvements, buildings, and general infrastructure best done centrally Monitoring moveable assets (machinery and equipment) verify existence and remove unreported retirements and record additions not previously recorded best done by departments

Monitoring capital asset records Actually … …a whole lot cheaper to monitor periodically than to start all over in three to five years

Maintaining capital asset records Updating capital asset information annually Update of information to subsequent fiscal year ends taking into account additions and retirements and adjusting information accordingly Decision to be made is choosing the logical person to maintain the integrity at the database – both centrally (point person responsible for annual updates) and departmentally (person in charge of additions and retirements for both the property accounting information and the property control information)

Maintaining capital asset records Updating capital asset information annually Land parcels – best done centrally Buildings – best done centrally Improvements other than buildings – best done centrally General infrastructure – best done departmentally (Engineer, Highway Director, Public Works Director, etc.) Furnishings and equipment – best done departmentally Vehicles – best done centrally with departmental input Minor but sensitive items – best done departmentally

Maintaining capital asset records Updating capital asset information annually Centrally (comments) Departmentally (comments) Responsible person (comments) ‘Clout’ – reference large county that utilizes affidavit that must be signed by Elected Official or Department Head

Timeline for annual update of capital asset information Not having a schedule can create problems Assume 6-30-14 fiscal year end 4-1-14 – gather information on additions 4-15-14 – separate capital and expense 5-1-14 – update report by department 5-15-14 – send updated information to departments for retirements 6-1-14 update list 6-30-14 prepare financial report

Property Control of minor but sensitive assets Items can’t be controlled centrally Departments should decide on items to control Information requirements are open to interpretation Inventory information probably exists and may only need reformatting Keep it simple Follow Recommended Practice

QUOTE … LITTLE THINGS ARE BIG -YOGI BERRA

Asset additions and retirements inclusions Must be an annual reporting process Capital assets only Additions in year of acquisition Retirements in year of disposal Construction-in-progress capitalized only when asset is officially accepted by administration, used in operations, and providing service

Asset additions and retirements responsibility Additions – centrally (Purchasing) Retirements – send updated list to Departments showing existing assets and current year additions and ask only for indication of retirements – make easy

Annual additions – available information Sources of cost information Invoices, expenditure vouchers, purchase orders Construction contracts, real estate closing documents Recorded of deeds Journal entries, work orders Appropriations Budget documents Bond documents

Annual additions – establishing data elements for financial reporting Very specific information Focus only on financial reporting – keep things simple Extemporaneous information to be recorded elsewhere Insurance Planning and forecasting Property control of minor assets

Accounting and financial reporting – necessary data elements Asset description Department Date of acquisition Historical cost Estimated useful life Depreciation calculation

Capital asset record example Local Roads

Construction-in-Progress Building – starts at planning and continues on to include design, architectural fees, site preparation, construction costs, etc. Bridge – starts at planning and continues on to include design, engineering, environmental, and construction costs, etc.

Construction-in-Progress Building componentization Keep simple and manageable Perhaps – building shell, roof, and HVAC Estimated useful lives will vary Shell @ 50 – 100 years Roof Cover @ 15 years HVAC @ 15 – 20 years

Construction-in-Progress Reporting construction-in-progress Can be significant Good discipline for future retirement of assets Good discipline for future capitalization of assets Applies to buildings and general infrastructure

QUOTE … THE GAME ISN’T OVER UNTIL IT’S OVER -YOGI BERRA

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