Frequently Asked Questions-Property Accounting Services - Equipment - Carnegie Mellon University

Frequently Asked Questions - Property Accounting Services (PAS)


Capital Equipment Threshold Increase


What is the change?

Effective July 1, 2006, capital equipment will be defined as: Individual items of furniture, software or equipment, with an original cost of $5,000.00 or more and a minimum useful life of 2 years. (Currently capital equipment has an original cost of $1,000.00 or more.)

Original cost includes the cost of the item, less any applicable discounts, plus any delivery charges and cost of installation. All of these costs are recorded as having been incurred on the asset's acquisition date (acquisition date is defined as the ship date on the invoice). The cost also includes any modifications, attachments, accessories, or auxiliary apparatus (accessories) which are acquired with the item and are necessary to make the item usable for its acquired purpose. Such accessories acquired after the capitalized item and with costs less than $5,000.00 are not capitalized and are charged to non-capital object code.


Why is the change needed?

The $1,000.00 capitalization threshold has been in effect since 1988 and has become outdated due to inflation and changes in technology. OMB Circular A-21 has allowed a capitalization level of $5,000.00 since 1996 and most of our peer institutions have already moved to the $5,000.00 level. A sampling of our peer and other comparative institutions that are currently utilizing the $5,000.00 minimum are:

California Institute of Technology, Cornell University, Duke University, Emory University, Northwestern University, University of Pennsylvania, Princeton University, Rensselaer, Rice University, Stanford University, Case Western Reserve, Harvard University, The Pennsylvania State University and the University of Pittsburgh.

The expected long-term effect of the change will be a lower administrative burden for most organizations, enhance control and stewardship over the inventory and improve compliance for required financial and federal audit requirements. Over the last several years external auditing agencies have recommended that the university study the effects of raising the asset capitalization threshold above the $1,000.00 level to reduce the administrative requirements of capitalizing, depreciating and tracking a significant number of low-cost assets. A study was conducted and a $3,500.00 threshold was proposed to the Audit Committee of the University Board of Trustees at the February 17, 2005 meeting. The Board overwhelming agreed that the university should increase the threshold and suggested that moving directly to the minimum level that OMB Circular A-21 allows would be the most prudent approach.

As with any change, an acknowledgement of some short-term costs associated with this implementation must be recognized. For example, organizations that choose to internally insure their equipment under $5,000.00, acquired after June 30, 2006 will have some additional clerical tasks in order to meet the Risk Management criteria for the internal insurance program. University administrative departments will continue to review and improve ways that allow units the ability to maintain stewardship for all University property without undue burden to the individual organization. In making this change the university will reduce the overall administrative effort. Organizations that have the greater part of the university's assets should experience the largest reduction of administrative effort that is required for the tracking and audit verification of equipment. Overall, by eliminating the requirement to record and track these relatively low valued items, more attention and effort can be given to safeguarding the remaining higher valued items. The hope is that this change will improve the university's overall control and stewardship of its assets and promote our compliance with external regulations and university policies and procedures.


There was a proposed threshold change a few years ago, how certain is the university that the change will be implemented this time?

The change has been approved by the Federal government and was included as part of the FY07 provisional Facilities and Administrative (F&A) rate agreement, which was signed on September 2, 2005. This acceptance by the Federal government was communicated at the September 13, 2005 Business Manager's Council (BMC) meeting.


Will new object codes be set-up to capture this new class of purchases or should the current non-capital object codes be utilized?

No, there will be no additional object codes. Capital object codes 87100-87300 should be used for items ≥ $ 5,000.00, non capital object codes 86100-86300 should be used to account for non capital acquisitions with a cost between $1,000.00 and $4,999.99, and current supplies/services object codes should be used to account for items with an acquisition cost of less than $1,000.00.


What will happen to the assets between $1,000.00 and $4,999.99 acquired prior to July 1, 2006?

Assets under $5,000.00 acquired prior to July 1, 2006 will remain on the inventory until they are disposed. Assets are subject to tagging, inventory, proper disposal process and audits and will remain covered under the internal insurance policy.


Will we need to remove property tags on items between $1,000.00 and $4,999.99 acquired prior to July 1, 2006?

No, there is no need to remove property tags. Assets under $5,000.00 acquired prior to July 1, 2006 will remain on the inventory until they are disposed. Assets are subject to tagging, inventory, proper disposal process and audits and will remain covered under the internal insurance policy.


Will there be a lower threshold for an upgrade or component of an existing movable asset?

No, the capitalization threshold of a component acquired after the acquisition date (invoice ship date) of an existing asset will be $5,000.00. The acquisition document for a component with an original cost of $5,000.00 or more, which is to be inserted into an existing movable asset, must state the Carnegie Mellon asset number or original acquisition information for the existing movable asset.


Will the criteria for fabricated equipment change?

Yes, fabricated equipment (accumulated costs ≥ $ 5,000.00) is defined as an item of equipment that is built or assembled from component parts by a Principal Investigator and/or other sponsored project personnel, an internal shop, or an external shop, typically through the performance of a university research sponsored project contract or grant. Costs that should be budgeted and charged to a Project - Task - Award (PTA) in Oracle which has been set up with a fabricated equipment service type (see Grants Management Manual) include materials and supplies necessary for the fabrication as well as any internal or external shop charges. Capital Equipment (individual item ≥ $ 5,000.00) that can be tagged separately should be charged to the appropriate (natural object code) expenditure type using the task that has been set-up to accumulate all of the costs associated with the item that is being constructed.

A faculty/staff working group chaired by Susan Burkett, Associate Provost for Research & Academic Administration, will be established and charged with the responsibility of developing criteria, policies and guidelines for the development of fabricated equipment. Organizations can anticipate an implementation plan by January 1, 2007. Some possible changes include oracle set-up requirements for the use of object code 87125 and the expenditure type of Fabricated Equipment, increased auditing of fabricated equipment transactions and final verification of equipment or prototype.


Will the equipment acquired after June 30, 2006, at a cost between $1,000.00 and $4,999.99, be tagged?

Property Accounting will no longer assign numbered tags or physically tag this class of equipment. Unnumbered Property of Carnegie Mellon tags have been available for a few years and Property Accounting will continue to distribute these tags upon request. Property Accounting will also procure tags similar to the current capital asset tags. These tags will have both a bar-code and human readable number and will be distributed upon request.


Will the assets between $1,000.00 and $4,999.99 acquired prior to July 1, 2006 be depreciated?

Yes, assets under $5,000.00 acquired prior to July 1, 2006 will remain on the inventory until they are disposed. Assets are subject to tagging, inventory, proper disposal process and audits and will remain covered under the internal insurance policy.


How will the equipment between $1,000.00 and $4,999.99 acquired after June 30, 2006 be tracked?

At this time there are no plans to track this equipment through the Property Accounting System (PAS). If an organization currently elects to maintain a non-capital inventory, a template can be located at: https://www.as.cmu.edu/~fsg/Property/PAS_TOC/PAS/PAS_DIR.htm

There is an Excel workbook available under the non-capital template section on the Property Accounting website noted above. This template has been created as a possible tracking solution. The use of this template is not required unless your organization chooses to participate in the internal insurance program. Risk Management has provided guidance for their data requirements (first 16 columns noted in red in the workbook) for the internal insurance program. If you wish to gather additional data for your non-capital equipment, you can utilize all data fields available and modify based on your organization's requirements. Financial Systems is currently assessing the feasibility of a query to be used for "non-capital" purchases that can be used as a first step in populating the template. When this tool is ready we will communicate via the BMC and update this document. A possible long-term solution is the replacement of PAS with new fixed asset software that might allow decentralized users the ability to maintain a "sensitive" property or non-capital property database.

For questions about this section, please contact Beth McShane, em1y@andrew.cmu.edu, x8.1640.


Sponsored Projects Accounting


Will the overhead rates be different for awards proposed or awarded prior to June 30, 2006 with equipment purchased after July 1, 2006?

The Facilities and Administration (F&A) rate remains the same for the life of an award, however items purchased after June 30, 2006 that cost less than $5,000.00 will be burdened with F&A costs.


Because the equipment acquired after June 30, 2006 at a cost between $1,000.00 and $4,999.99 will no longer be capitalized, are there government regulations that would disallow this type of purchase?

No, Existing awards and/or awarded FY06 proposals would allow charges of equipment purchases of less than $5,000.00; however, these charges will be fully burdened with the Facilities and Administration (F&A) rate after June 30, 2006 regardless of the award start date or when it was proposed.

General Purpose equipment going forward, will be unallowable unless there is a detailed justification as to why it is project specific and would not be purchased if the proposal is not awarded.


Can general office equipment now be purchased with federal funds, assuming that the item costs less than $5,000.00?

No, OMB Circular A-21 places restrictions of both general office and general office supplies as direct charges. Whether or not an item is classified as equipment, it can be direct charged to a sponsored project only if it is necessary and will be used specifically for that project. Only under unusual circumstances, would general office or general office supplies be considered necessary for the operation of a sponsored project. In such circumstances it is recommended that these items be specifically identified in the proposal budget. Regardless of whether or not an item is in a proposal, all items under the $5,000.00 threshold will be burdened with the F&A rate.


Is the University required to insure Government acquired equipment?

No, unless specifically required in the agreement.


Does the University need to track equipment between $1,000.00 and $4,999.99 for contracts with the FAR clause 52.245-5 which states that title vests with Government?

Yes, All contracts with FAR clause 52.245-5 will require the University to track all equipment ≥ $1000.00. In conjunction with Sponsored Projects Accounting, Property Accounting Services will analyze all contracts with FAR clause 52.245-5 on a quarterly basis to identify all equipment charges with an original cost between $1,000.00 and $4,999.which will then be recorded, tagged and tracked through the Property Accounting System.

For questions about this section, please contact Rhonda Kloss, rkloss@andrew.cmu.edu, x 8.1015.


Office of Sponsored Projects


Will there be an additional budget justification required for equipment between $1,000 and $4,999.99?

A-21 states in Section J.18.a (4) "General-purpose equipment" means equipment, which is not limited to research, medical, scientific or other technical activities. Examples include office equipment and furnishings, modular offices, telephone networks, information technology equipment and systems, air conditioning equipment, reproduction and printing equipment, and motor vehicles.

A-21 details further under Section J.18.b (1) Capital expenditures for general purpose equipment, buildings, and land are unallowable as direct charges, except where approved in advance by the awarding agency. Consequently all equipment ≤ $ 5,000.00 proposed on an award will need to be justified as project specific.

For questions about this section, please contact Joe Sullivan, joseph4@andrew.cmu.edu, x 8.1161.


Procurement Services


Will there be any changes to the Purchasing Checklist and Bid Summary Form?

No, The information required for the Purchasing Checklist and Bid Summary Form is not changing; the change in capitalization threshold does not impact this process. The Purchasing Checklist/Bid Summary Form is required for all transactions and purchase orders of $2,500 or greater for general items/services and $2,000 for construction-related items using federal funds with non-Preferred Suppliers. (Federally funded acquisitions = $2,500 with non-Preferred Suppliers must be done on an Oracle PO).


Define Acquisition Date?

The acquisition date is the ship date that appears on the invoice. If no ship date is noted the date of the invoice will be used for the date acquired.


What determines the classification of equipment as capital or non-capital during the transition between FY06 and FY07: the date of the purchase order; the date of receipt; or the date of the payment?

The date the equipment is received (Invoice ship date) will determine its classification as capital or non-capital. Non-capital object codes should be used if the supplier gives a promised delivery date of July 1, 2006 or later. If the delivery promise is June 30, 2006 or sooner, a capital object code should be used.

Property Accounting Services (PAS) will review all invoices charged to a capital object code after June 30, 2006. If a purchase order was originally charged to a capital object code and the invoice ship date is after June 30, 2006, PAS will submit an Accounts Payable Re-Distribution form to move the charge to an appropriate object code.

For questions about this section, please contact Gary Hayden, ghayden@andrew.cmu.edu, x 8.6248.


Card Services


Will the Tartan Trust Card (TTC) policy be changed to allow cardholders the ability to use their TTC for the acquisition of equipment under $5,000.00?

No, Although we had reviewed the opportunity to use the Tartan Trust Card for equipment purchases from $1,000.00 to $4,999.00 and thought that we would be able to offer this benefit to campus, activity related to the use of the card has forced us to reconsider this plan. Based on the recent card audits which have prompted the enhancement of other internal controls, it is not currently prudent to change the limit for equipment card purchases.

With enhanced internal controls and hopefully better experience during the audits, we may be able to reconsider the $1,000 limit on card purchases in 18-24 months. However, review of peer institutions has shown that many place similar restrictions on the use of their procurement cards.

For questions about this section, please visit the Procurement Services website at http://www.cmu.edu/finance/procurementservices.

Cost Analysis


Will the equipment between $1,000.00 and $4,999.99 acquired after June 30, 2006 be burdened with the Facilities and Administration rate?

Yes, these charges will be fully burdened with the Facilities and Administration (F&A) rate after June 30, 2006 regardless of the award start date or when the award was proposed.


Will the equipment between $1,000.00 and $4,999.99 acquired after June 30, 2006 on existing contracts, grants or cooperative agreements be burdened with the Facilities and Administration rate?

Yes,non capital equipment charges on existing contracts, grants or cooperative agreements will be fully burdened with the Facilities and Administration (F&A) rate after June 30, 2006.


Will the F&A rates decrease once the threshold changes?

Yes, F&A rates do decrease due to an increase in the threshold.

The reason why is:

The F&A rate is equal to???????? Total F&A Costs Allocated to Research??????????????????????????????????????????????? Modified Total Direct Cost ? Research Currently, equipment depreciation expense for assets greater than or equal to $1,000.00 is included in the numerator.? The total original expense of the asset is excluded from the research base (denominator). When we change the threshold, the amount of equipment depreciation expense will decrease due to fewer assets being depreciated and the MTDC for research will increase because equipment less than $5,000.00 will now be considered research expenses.

Total F&A Costs Allocated to Research? ?? Decrease F&A costs = Lower F&A rate

Modified Total Direct Cost ? Research????????? Increase MTDC

We anticipate that the F&A rate will decrease about 1.5% due to the change in threshold. For the next three years, ONR (Office of Naval Research) will allow us to expense the uncollected depreciation (~$1.3M per year) which will nearly offset the decrease due to the threshold change. Therefore, the decrease in rates due to the change in threshold will not be evident until FY2010. (Starting in FY2007, however, the university F&A rates will begin to increase due to the campus expansion projects, such as the purchase of 300 S. Craig Street, additional leased space necessary to support our research and the Gates Center project. The decrease due to the threshold will not be evident to the campus community.)

For questions about this section, please contact Anne Marie Bosnyak, ab3t@andrew.cmu.edu, x 8.1004.

Risk and Compliance


How will the equipment between $1,000.00 and $4,999.99 acquired after June 30, 2006 be tracked?

At this time there are no plans to track this equipment through the Property Accounting System (PAS).? If an organization currently elects to maintain a non-capital inventory, a template can be located at:

https://www.as.cmu.edu/~fsg/Property/PAS_TOC/PAS/PAS_DIR.htm

There is an Excel workbook available under the non-capital template section on the Property Accounting website noted above.? This template has been created as a possible tracking solution.? The use of this template is not required unless your organization chooses to participate in the internal insurance program.? Risk Management has provided guidance for their data requirements (first 16 columns noted in red in the workbook) for the internal insurance program.? If you wish to gather additional data for your non-capital equipment, you can utilize all data fields available and modify based on your organization?s requirements.? Financial Systems is currently assessing the feasibility of a query to be used for ?non-capital? purchases that can be used as a first step in populating the template.? When this tool is ready we will communicate via the BMC and update this document.? A possible long-term solution is the replacement of PAS with new fixed asset software that might allow decentralized users the ability to maintain a ?sensitive? property or non-capital property database.


Equipment between $1,000.00 and $4,999.99 acquired after June 30, 2006 will no longer be listed on an inventory list.? Is this a risk to the individual organizations and the University?

There will be some reduction in internal controls over these items if departments choose not to track selected equipment purchases.


Can equipment between $1,000.00 and $4,999.99 acquired after June 30, 2006 be insured?

Yes, the Internal Insurance Program will continue to provide insurance coverage, for participating departments, for these items utilizing a combination of data from both PAS and individual organizations.


How do other institutions that have a $5,000.00 capitalization threshold handle their insurance issues for this class of equipment?

Review of insurance practices from other universities indicates departmental deductible responsibilities ranging from $1,000 to $5,000. At this point in time, we expect to hold the CMU departmental deductible to $250.00 for FY07 while relying on recordkeeping of participating organizations provided to Risk Management.


Can Risk Management maintain a database for this class of equipment?

No, Risk Management cannot maintain such a database, as it would be both cost prohibitive and overly burdensome to maintain due to decentralized purchasing of this class of equipment. Risk Management does not currently, and does not intend to, include any program administrative costs to the internal insurance program.


What are the criteria for reimbursement under the internal insurance policy when the new threshold goes into effect?

The current criteria for reimbursement can be found at: https://www.as.cmu.edu/~fsg/risk/Insurance_Guidelines.pdf. Until we see how these changes impact the internal insurance program we do not expect to change current criteria. Hopefully the current criteria that seem to be acceptable to most participants will stay in place.


Does the equipment between $1,000.00 and $4,999.99 acquired after June 30, 2006 need to be insured?

This is a business decision that each department needs to consider.? All property losses of non-participating departments in the pool are subject to a $100,000 per loss deductible.


Will the internal insurance pool cover equipment between $1,000.00 and $4,999.99 acquired after June 30, 2006?

Yes, however, departments must maintain a list of the non capital equipment to be insured and must report such list to Risk Management for July 1, 2007 program renewal.


If yes to the question above, what information regarding the equipment must departments maintain for insurance purposes?

Similar to the information currently maintained by PAS.? If an organization does not already maintain their own inventory an inventory template with the required fields for internal insurance can be located at:

https://www.as.cmu.edu/~fsg/Property/PAS_TOC/PAS/PAS_DIR.htm

There is an Excel workbook available under the non-capital template section on the Property Accounting website noted above. This template has been created as a possible tracking solution.? The use of this template is not required unless your organization chooses to participate in the internal insurance program. Risk Management has provided guidance for their data requirements (first 16 columns noted in red in the workbook) for the internal insurance program. If you wish to gather additional data for your non-capital equipment, you can utilize all data fields available and modify based on your organization?s requirements. Financial Systems is currently assessing the feasibility of a query to be used for non-capital purchases that can be used as a first step in populating the template. When this tool is ready we will communicate via the BMC and update this document. A possible long-term solution is the replacement of PAS with new fixed asset software that might allow decentralized users the ability to maintain a sensitive property or non-capital property database.


Is it possible to insure equipment at different levels, i.e. Level #1 $3,000.00 - $4,999.99, Level #2 = $5,000.00? (no insurance for equipment = $2,999.99)?

Not initially but Risk Management will review this issue on a regular basis to determine feasibility to implement and administer.

For questions about this section, please contact Brian Cappo, bcappo@andrew.cmu.edu x3790.