OFFICE OF THE CHIEF FINANCIAL OFFICER CFO FINANCIAL POLICY AND TRAINING OFFICE Color of Money: Operating Versus Capital Presented by Tim Young

OFFICE OF THE CHIEF FINANCIAL OFFICER CFO FINANCIAL POLICY AND TRAINING OFFICE 2 Objectives Importance of Color of Money Equipment – When to Use Operating Funds Equipment – When to Use Capital Funds Construction – When to use Operating Funds Construction – When to use Capital Funds

OFFICE OF THE CHIEF FINANCIAL OFFICER CFO FINANCIAL POLICY AND TRAINING OFFICE 3 Capitalization Changes Purchased after October 1, 2005: Useful life criteria New Capitalization Threshold $50K new threshold Service life remains at 2 years or more FMSIC requested the change $5K threshold for property accountability does not change For property acquired starting in FY06 Equipment purchased before FY06 with a value less than $50K will not be written-off

OFFICE OF THE CHIEF FINANCIAL OFFICER CFO FINANCIAL POLICY AND TRAINING OFFICE 4 Why Worry About the Color of Money ? Financial statements must accurately reflect asset balances Heavily audited activity Funding must be used for its intended purpose DOE policies prescribe capitalization criteria Accurate usage of Operating versus Capital funding at the beginning of a project is essential to accurately report financial statements to DOE, UC, and outside audit firms

OFFICE OF THE CHIEF FINANCIAL OFFICER CFO FINANCIAL POLICY AND TRAINING OFFICE 5 Hierarchy of Accounting Rules Contract 31 DOE Accounting Handbook Federal Financial Accounting Standards (FFAS) Financial Accounting Standard Board –Generally Accepted Accounting Principles (GAAP)

OFFICE OF THE CHIEF FINANCIAL OFFICER CFO FINANCIAL POLICY AND TRAINING OFFICE 6 Color of Money 1 >50k$ & Service Life >2 years 2 <50k$ & Service Life <2 years

OFFICE OF THE CHIEF FINANCIAL OFFICER CFO FINANCIAL POLICY AND TRAINING OFFICE 7 Construction Operating Funds: Repair – restoration of a deteriorated facility Maintenance – day-to-day work to maintain and preserve the facility Alteration – adjustments to the interior arrangements of a facility Experimental and Demonstration (ED) – unique prototype facility constructed to demonstrate the feasibility of a particular process Operating Lease

OFFICE OF THE CHIEF FINANCIAL OFFICER CFO FINANCIAL POLICY AND TRAINING OFFICE 8 Construction Capital Funds: Betterments – improvements that result in better quality, higher capacity, or extended useful life Construction – new plant facility; improvement to existing facility Conversion – major structural revision that changes functional purpose Install or assemble a new utility system Capital Lease

OFFICE OF THE CHIEF FINANCIAL OFFICER CFO FINANCIAL POLICY AND TRAINING OFFICE 9 Equipment/Fabrication Operating Funds: Cost less than $50K Service life less than 2 years Prototype, inherently experimental, or expected to be consumed within 2 years Like-for-like replacement (essentially same performance capabilities)

OFFICE OF THE CHIEF FINANCIAL OFFICER CFO FINANCIAL POLICY AND TRAINING OFFICE 10 Capital Funds: –Equipment that has a service life of two or more years, and costs $50K or above (invoice price, transportation charges, modification and installation costs) Fabrication of equipment to accomplish a special purpose in the performance of a project Betterments to an existing unit Equipment/Fabrication

OFFICE OF THE CHIEF FINANCIAL OFFICER CFO FINANCIAL POLICY AND TRAINING OFFICE 11 Color of Money Committee Purposes: –Examine proposals for GPP, GPE and Non-Cap $ –Ad hoc issues Committee Members –Facilities - Rich McClure and Emmy Randol –OCFO – Anne Moore, Michelle Blaha, Sonya Neely and Tim Young

OFFICE OF THE CHIEF FINANCIAL OFFICER CFO FINANCIAL POLICY AND TRAINING OFFICE 12 Current Process Requests for GPP, GPE and Non-Cap – Annual Call Process: –Divisions submit a proposal to Rich McClure, Facilities Planning –Proposals are reviewed by the Color of Money Committee –Proposals initially accepted are compiled and sent to senior management for prioritization and funding