1. Leading Excellence in Research Costing Practices
Welcome NACCA Members Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Leading Excellence in Research Costing Practices
General Conference: 10/3 – 10/5, 2017

2. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
DISCUSSION TOPICS
~ Recharge costs on:
Building Depreciation
Equipment Depreciation
Space & Department Data
~ Obtaining a representative F&A recovery of depreciation while remaining consistent with University accounting policies and UG guidelines.

3. Getting to know your presenter:
Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Getting to know your presenter:
~ Greg Sheahan, President, HCA Asset Management LLC. First University Project = The University of Michigan FY1991; A building cost segregation/componentization and fixed asset inventory and valuation engagement.

4. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
The “devils in the details” accurate asset records assist in support of:
Financial accounting valuations and conclusions
Capital expenditure planning
Audit compliance
F&A cost recoveries and
Accountability and control

5. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
“It doesn’t matter until it matters”

6. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Changes that have impacted building & equipment depreciation with the introduction of the Uniform Guidance (UG) – OMB 2 CFR 200
Combines 8 circulars into one document
Replaces OMB Circular A-21, 2 CFR 220
Use allowance & “loss due to imputed depreciation” no longer relevant
Additional emphasis being placed on stewardship and accountability

7. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
2 CFR 200 –
Reconciled to Financial System Fixed Asset Detail
Interest Expenses for Buildings follows Building Cost
Not intended to impose on an institution with specific accounting practices if compliant with generally accepted accounting practices

8. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Building Depreciation
Componentization = Segregation of building “parts” into components that roll up into Building shell, Building Services and Building Fixed Equipment.
1) Component costs represent original acquisition costs.
2) Federal funds are appropriately apportioned and deducted.
3) Fixed equipment costs are treated as a component of the building depreciation.
4) Depreciation generated from the cost distribution to component(s) is allocated to the entire building on an assignable square foot basis.

9. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Building Depreciation
5) On occasion, the component is not fully depreciated but is being replaced - floor cover, roof cover etc. – “layering effect” addressed by componentization.
6) By depreciating at the component level and reviewing areas of renovation one now has the ability to remove only component costs that are being replaced – accurate removal costs not a % of project cost.
7) Not all buildings need to be considered for detailed cost segregation. Specific criteria can be set for buildings (i.e. buildings with 25% > organized research with book cost of $20 million >) as long as not “cherry picking”.

10. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Building Depreciation
8) Sub components (i.e. HVAC, electric etc.) roll-up
9) University data used to establish supportable lives
10) Life spans that reflect consumption at your institution
11) The impact component accounting lives have on F&A
A-21 section J.12.b.(4) now Uniform Guidance UG …three general components
“When the depreciation method is used for buildings, a building may be divided into three general components. Each component item must then be depreciated over its estimated useful life.”

11. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Building Depreciation

12. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Building Cost Pools and Allocations
Pool: Componentized Buildings
Buildings with significant research activity
Accelerates recognition of depreciation
Allocated based on space
Pool: Non-Componentized Buildings
Pool: OIA Buildings
Pool: Other Improvement

13. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Building Cost Pools and Allocations
Building Depreciation represents a significant portion of the University’s F&A rate.
A building provides the most benefit when:
There is significant research activity
Expensive
University paid
Keep an eye for major construction projects since last proposal
Importance of communication with Space Management/Facilities

14. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Building Cost Pools and Allocations
Know when new research intensive buildings and major additions are coming online
Completion Date
Occupancy Date
Know which departments are moving into new space and what will happen to the space they vacate
“Decompression” from existing space is good
New researcher’s/`PI’s moving into space
Know nature of research activity
PIs with established research portfolio vs. new faculty

15. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Building Componentization – YES
~ Depreciation already in place per GASB compliance
~ Compliance with UG, A-21 & A110 cost standards – F&A overhead recoveries
~ Could help to facilitate a Room Rental Charge
~ Plan Future Renovation Schedule
~ Positive impact on F&A rate calculations/recoveries

16. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Equipment Depreciation
CFR 200.2
Acquisition Cost = The cost of asset including any additional cost to ready asset for its intended use.
Ancillary charges, such as taxes, duty, protective in transit insurance, freight and installation may be included or excluded from the acquisition costs in accordance with current Universities regular accounting practice.
Acquisition costs for software includes development costs capitalized in accordance GAAP.

17. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Equipment Depreciation
CFR
Tangible or intangible assets used in operations having a useful life of 1 year > capitalized in accordance with GAAP.
Land, buildings (facilities), equipment and intellectual property (including software) whether acquired by purchase, construction, manufacture, lease purchase, exchange or through capital leases.
Depreciation computed in accordance with Section and Appendix III (IHE) formerly A-21 section J.14 and F.2.

18. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Equipment Depreciation
CFR
Computing devices = machines used to acquire, store, analyze, process and publish data and other information electronically.
This includes accessories or “peripherals” for printing, transmitting and receiving or storing electronic information.
These sensitive items, regardless of price, are recognized as assets that store private data and should be tracked (i.e. IT assets).

19. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Equipment Depreciation CFR
Lesser of the capitalization threshold of institution or $5,000.
As Institutions move to a higher threshold(s) periodic review is needed to confirm current accounting classifications and lives are still accurate.
As research becomes more detailed and specific the lives associated with the instrumentation could be limited.
Federally titled equipment tracked “period” – not subject to entity thresholds (FAR) guidelines. University must submit annual inventory listing of federally-owned property in its custody.

20. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Equipment Depreciation CFR
Federally-owned equipment must be used in the program or project for which it was acquired as long as needed.
Managing requirements – property records must be maintained that includes description of the property, serial #, source of funding, who holds title, acquisition date, cost of property, % of federal participation. Location, use and condition of the property and any ultimate disposition data including the date of disposal and sale price of property.
A physical inventory must be taken and the results reconciled with financial records every two years

21. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Equipment Depreciation CFR
A control system must be in place to ensure adequate safeguards to prevent loss, damage or theft of the property. Any loss damage or theft must be investigated.
Adequate maintenance procedures must be developed to keep property in good working condition.
Well-documented consistent treatment(s) of equipment accounting classification, useful lives and depreciation allocation in conjunction with Uniform Guidance guidelines should be utilized by institutions when submitting F&A rate calculations for defensible methodologies.

22. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Equipment Depreciation

23. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Equipment Cost Pools and Allocations
Pool: Equipment by room
Best for OR F&A rate
F&A depreciation recovery on equipment using % of research by room predicated on institutions ability to demonstrate accurate accountability and location of assets.
Pool: Equipment by department
Departmental salaries and wages
Pool: Equipment by building
Usually worst for OR F&A rate

24. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Equipment Cost Pools and Allocations
Ideally want to match >90% of equipment to a valid building and room
Importance of accurate space inventory, floor plans
Review space functionalization results
Element of risk during on-site visit
Equipment is moveable by nature
Complete inventory in shortest amount of time to minimize effect of movement
Timely additions and tag application

25. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Equipment Cost Pools and Allocations
Make it easy for departments to communicate dispositions, transfers to central office
Communicate and educate
Simplify policies and procedures
Clarify roles and responsibilities
Have a robust asset system
Confirm that proper exclusions are in place
Federal funds, service centers
Track split-funded and fabricated assets

26. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Equipment Depreciation, keep the data clean – YES
~ Provides assistance in space & room function review/consistency
~ Removal of “ghost items”
~ Could result in positive impact on financial overhead rate calculations/recoveries
~ ROI – Management will be interested (they love these 3 letters)
~ Audit confidence A-133, UG audits etc.

27. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Research Space & Departmental Data
Field verified research space BEFORE functionalization: Goal = assess and improve the space data:
Collect building number, building description & room number
Measure gross/assignable square foot – when necessary
Identify department(org) occupying space
Identify Occupants in space
a. PI name and/or employee ID

28. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Research Space & Departmental Data
Field verified research space BEFORE functionalization: Goal = assess and improve the space data:
Identify funding sources of occupants
a. sponsored accounts
b. non-sponsored accounts
Assign room type (HEGIS)
Confirm room plaques nomenclature = space file
a. Room 100 on plaque = space file room 0100

29. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Research Space & Departmental Data

30. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Research Space & Departmental Data
Field verified research space BEFORE functionalization: Goal = assess and improve the space data:
Analyze Findings
Rooms inventoried in field - no record in space file
Rooms in space file – room/space no longer exist
PI’s moved to renovated space
Entire Departments relocated

31. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Research Space & Departmental Data
Field verified research space BEFORE functionalization: Goal = assess and improve the space data:
Analyze Finding
Room type code inconsistent with visual inspection
Research equipment identified in rooms with inconsistent designation type (i.e. DA)
Departments view as an inconvenience – any additional data needed (1 time review)

32. Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Research Space & Departmental Data
Good current space data = functionalization support
Do departments currently self-certify equipment under their stewardship
Statistical sampling of department equipment listings while in the space
Space Department needs:
a. space utilization, future planning and
b. institutional comparisons

33. Questions - Discussions.
Depreciation Allocations, Challenges and Best Practice for F&A Proposals
Questions - Discussions
Thank you
Greg Sheahan
(941)   office   (941)   cell
HCA Asset Management LLC