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HomeMy WebLinkAboutMINUTES - 08072001 - HA.3 HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA TO: BOARD OF COMMISSIONERS FROM: Robert McEwan, Executive Director DATE: AUGUST 7, 2001 SUBJECT: REVISED CAPITALIZATION POLICY FOR THE HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA SPECIFIC REQUEST(S) OR RECOMMENDATION(S) & BACKGROUND AND JUSTIFICATION I. RECOMMENDED ACTION: APPROVE the revised Capitalization Policy for the Housing Authority of the County of Contra Costa to be consistent with the compliance requirements of the U. S. Department of Housing and Urban Development (HUD). II. FINANCIAL IMPACT: None. III. REASONS FOR RECOMMENDATION/BACKGROUND The U. S. Department of Housing & Urban Development- Real Estate Assessment Center requires the Housing Authority to submit electronically its Annual Financial Statements under Generally Accepted Accounting Practices (GAAP). It recommends an application of the full accrual basis for the GAAP financial statements disclosure and presentation. To be consistent with the preferred full accrual basis, the Housing Authority has, from fiscal year ended March 31,2001, adopted the application of"Full Accrual Basis Enterprise Model". The Enterprise Model requires that expenditures for certain equipment be capitalized as fixed assets and depreciated over their estimated useful lives. The Housing Authority's current capitalization policy has been in effect since February 8, 1983 It is necessary to change the current policy to incorporate the provisions of the Full Accrual Basis Enterprise Model. This revised policy will raise the minimum capitalization amount for the Housing Authority from $300 to $5,000 as recommended by Office of Management and Budget Circular A- 133, Part 3, F, "Equipment and Real Property Management". CONTINUED ON ATTACHMENT: YES SIGNATURE RECOMMENDATION OF EXECUTIVE DIRECTOR RECOMMENDATION OF BOARD COMMITTEE APPROVE OTHER SIGNATURE(S): ACTION OF BOARD ON August 7, 2001 APPROVED AS RECOMMENDED XXX OTHER VOTE OF COMMISSIONERS I HEREBY CERTIFY THAT THIS IS A XXUNANIMOUS (ABSENT ----- ) TRUE AND CORRECT COPY OF AN AYES: NOES: ACTION TAKEN AND ENTERED ON THE ABSENT: ABSTAIN: MINUTES OF THE BOARD OF COMMISSIONERS ON THE DATE SHOWN. ATTESTED August 7, 2001 JOHN SWEETEN,CLERK OF THE BOARD OF COMMISSIONERS AND COUNTY ADMINISTRATOR BY �1�(�l/W � EPUTY H:\judyhmtz\MSOFFICE\WINWORD\BOARD\BO-Capitalization Policy.doc Approval of the revised policy requires that accounting book entries be made to write-off those assets with original costs of less than $5,000. Also, those assets with original costs of more than $5,000 will be partly or fully depreciated over their respective useful life from their original date of service. Attached for your review and approval is a copy of the revised Capitalization Policy. IV. CONSEQUENCES OF NEGATIVE ACTION: Should the Board of Commissioners elect not to approve the revised Capitalization Policy for the Housing Authority of the County of Contra Costa, they would not be in compliance with the requirements of HUD regulations. bo-audit Approval Date: Revision Date: CAPITALIZATION POLICY k Minimum-Capitalization Amount: In accordance with criteria set out below it is determined that a minimum capitalization amount of$5,000 shall be applied'to justify capitalization of property and equipment, With an estimateduseful life of 1 year or more, to fixed assets and maintaining continuing-property records. B. Ctiteria for•-Selection of Items-of Equipment to be capitalized: The determination as to the selection of items of equipment to be capitalized as for financial control purposes shall be based on sound principles of property management after giving full consideration to the advantages of financial control. In selecting items of equipment to be capitalized as `non-expendable' for budgetary and financial control purposes, consideration shall be given to the following advantages of financial control; • Comparative data are available for financial planning purposes in the purchase of new equipment or replacements. • A source of-information is provided for insurance coverage and claims. • A valid basis is provided for the comparison of physical inventories with the records. • A more effective basis,is provided for custodial accountability. Examples of,the factors and standards relating to the nature of the expenditure and the characteristics of-the property unit that shall be considered in establishing the criteria include:. • Retention of identity when put into use. • Relatively long services, usually more than one year. • Repeated use, rather than one-time use and no need for frequent replacement. • Sufficient value to justify-maintaining continuing monetary property records, but the minimum-should not be so large that maintenance expense of current and successive periods is distorted. In selecting items of equipment to be capitalized as "non-expendable" for budgetary and financial control purposes, consideration shall be given to the following. Accordingly, as a minimum, the criteria established by the Housing Authority for the selection of items to be capitalized shall provide for the classification of major items such as, motor vehicles, power equipment, office furniture and equipment, and similar - Housing Authority of the County of Contra Costa - Captalization Policy - Page 1 of 6 - \\housauth_1\user\bobmcmtz\msoffice\winword\capit alization policyl.doc Approval Date: Revision Date: items of durable nature as non-expendable equipment for which financial control is to be maintained. The ranges and the refrigerators generally do not meet the minimum threshold of$5,000 and thus would not be capitalized. However, as.required by Housing and Urban Development the ranges and the refrigerators would be separately tracked by means memorandum book entries and annually, at fiscal year-end, reconciled to the subsidiary continuing-records and the physical count. C. Capitalization of Property for Financial Control Purposes. All property purchased or constructed for the Development of a Project from borrowed funds and all property donated for the development of a property shall be treated as capitalized property. D. Depreciation Method and the Useful life: All the depreciable assets shall be depreciated over their useful life using the straight- line method. The Housing authority has determined to apply useful life of each type of fixed assets as enumerated below; • Building 27.5 years • Land improvements (fences, scrubs, roads etc) 10 years • Office Furniture/equipment 5 years • Autos/Trucks/other motor vehicles 5 years • Computer hardware and software 3 years E. Attachments: The following are attachments to this policy. 1. Attachment 1= General Policy and the Compliance Requirements. 2. Attachment 2- Classification of Real and Personal Property. 3. Attachment 3- Inventory of Equipment. 4. Attachment 4- OMB Circular A-133, Compliance Supplement, Part 3 F, Equipment and Real Property Management. 5. Attachment 5- HUD REAC-Financial Data Schedule and Crosswalk Guide- GAAP requirements. - Housing Authority of the County of Contra Costa - Captalization Policy - Page 2 of 6 \\housauth_1\user\bobmcmtz\msoffice\winwo rd\ca pita lization policyl.doc Approval Date: Revision Date: ATTACHMENT 1- GENERAL POLICY AND THE COMPLIANCE REQUIREMENTS The Housing Authority of Contra Costa shall establish and maintain complete and accurate records of all real and personal property, acquired and held for projects under contract with HUD and other federal and local agencies in accordance with the principles, standards and compliance requirement of OMB Circular A-133, Compliance Supplement-Provisional 6197, Part 3, F, 'Equipment and Real Property Management'. See attachment 4. In addition, the method to be used to account for and control.of capitalized items; equipment, materials and supplies shall be based on sound principles of property management accounting and control. Succinctly stated, the basic control criteria shall be-established to assure the following: • property existence • valuation • accuracy • classification and disclosure in Housing Authority's financial statements Under HUD Accounting,-fixed assets are recorded at cost; all development and modernization costs-are capitalized without consideration or separation between "soft" and "hard" costs. Starting in FY beginning April 1, 2000, fixed assets shall be accounted for in the Proprietary Fund, i.e. purchase of property, plant, and equipment is recorded in accordance with the capitalization standards under the Enterprise Fund Method (GAAP), as follows: • Under the Enterprise Fund, all development costs and hard modernization costs (costs that extend the useful life or utility of the assets) shall be capitalized. • Hard modernization costs-are incurred for projects associated with the purchase of the capital assets and major construction or improvements (e.g. addition to a building or installation of a new boiler). • All soft modernization costs (e.g. most management improvements, relocation costs, admin costs, resident services) are expensed. • Appropriate accounting entries are debited or credited for each type of fixed asset transaction. - Housing Authority of the County of Contra Costa - Captalization Policy - Page 3 of 6 \\housauth l\user\bobmcmtz\msoffice\winword\capitalization policyl.doc Approval nate: Revision Date: ATTACHMENT 2- CLASSIFICATION OF REAL AND PERSONAL PROPERTY A. Real Property. Real property comprises all land and buildings and all fixtures permanently attached thereto, installed in a fixed position, such as elevators, boilers, all heating equipment, except space heaters not connected to ducts or pipes for the distribution of heat; water, gas, and electric meters; fixed cabinets, shelving, and other built-in facilities, such as, fences, garbage stations, and other similar appurtenances. In connection with accounting for property, fixed assets are classified into 12 separate accounts: 1. Site Acquisition 2. Site Improvement 3. Dwelling Structures 4. Dwelling Equipment - Non-expendable 5. Dwelling Equipment— Expendable 6. Non dwelling Structures 7. Indirect Development Costs 8. Office Furniture and Equipment 9. Maintenance Equipment 10.Community Space Equipment 11.Automotive Equipment 12.Expendable Equipment B. Personal Property— Personal Property encompasses all materials, supplies, equipment, and fixtures which are not attached to the land or the buildings and are not installed in a fixed position, such as ranges, water heaters, refrigerators, screens, window shades, movable kitchen cabinets and tables, office equipment, community space equipment, maintenance equipment, individual space heaters not connected to ducts or pipes for the distribution of heat, and playground equipment, benches, etc. not permanently installed in a fixed position. For accounting purposes, personal property is treated in three general classes of items as follows: 1. Materials and Supplies - defined as items of property which, a. can be used only once, such as fuel, cleaning supplies, etc.; b. are.spent in use, such as brooms, brushes, etc.; or - Housing Authority of the County of Contra Costa - Captalization Policy - Page 4 of 6 \\housauth_1\user\bobmcmtz\msoffice\winword\capit alization policyl.doc Approval Date: Revision Date: c. lose their identity or become an integral part of other property when put into use, such as nails, lumber, cement, repair parts, etc. d. The term "Materials and Supplies" also includes items of small tools and equipment having a useful life of one year or less. 2. Expendable Equipment - defined as items of equipment having a useful life of more than one year, the cost of which, when purchased, is not treated as a capital expenditure (e.g. small tool, calculator). 3. Non-expendable Equipment- defined as items of equipment that has a useful life of more than one year, the cost of which is treated as a capital expenditure and for which financial control is maintained through appropriate control accounts in the general ledger. Examples are: a. Office fixtures; desks; file cabinets b. Copiers; postage machine c. Cellular phones; mobile radios d, Maintenance equipment e. Computer equipment (server), PCs, printers f. Autos, trucks and vans g. Non-dwelling equipment - Housing Authority of the County of Contra Costa - Captalization Policy - Page 5 of 6 \\housauth 1\user\bobmcmtz\msoffice\winwo rd\capita lization policyl.doc Approval Vate: Revision Date: ATTACHMENT 3- INVENTORY OF EQUIPMENT Housing Authority of Contra Costa County shall take an annual physical inventory, preferably at the fiscal year=end, of all items of non-expendable equipment and compare thephysical inventory with the inventory records and reconciled to the general ledger. The purpose of the physical inventory is to provide the Housing Authority with accurate Valuation-to meet the following objectives: Financial Reporting. Fulfill current fiscal reporting requirements, establish audit compliance with Generally Accepted Accounting Principles (GAAP). • Accountability and Control. Meet current requirements for accountability and custodianship. Enhance operational efficiency through identification, control, re-inventory and-maintenance of equipment. • Insurance. Provide current insurable:values for placement and proof of loss and a system for perpetuation of the conclusions. Capital Expenditure Planning. Establish a basis for projecting capital asset improvements and replacements to assist the Housing Authority in planning and budgeting processes. Differences between the amounts shown by the records and the amounts obtained through a physical count arising out of errors, other than theft, destruction, or obsolescence; shall be adjusted by means of inventory adjustment reports approved by the Finance Director or the Accounting Manager. Losses from theft destruction or obsolescence shall first be evaluated by Deputy Director or the Facilities Manager, both for the accounting record and the administrative controls to be used. Inventory listings shall be retained pending audit for a period of three years, or, if pending audit, three years after audit. Generally, due-to the capitalization threshold of$5,000, Ranges and Refrigerators will not be capitalized. However, HUD requires that these should be tracked and accordingly general ledger tracking memorandum entries will be maintained. Also, the Operation Department shall continue to maintain complete listing of ranges and refrigerators inventory that would be annually'reconciled to the physical count as if they are capitalized fixed assets, and the normal inventory procedures in this attachment will be applicable. - Housing Authority of the County of Contra Costa - Captalization Policy - Page 6 of 6 \\housauth_1\user\bobmcmtz\msofflce\winword\capitalization policyl.doc i Ofhce of Management and Bue '. Page 1 of 108 ATTACHMENT 4 i. 1W R -p /. TABLE OF CONTENTS PART 1 -_13_A_CKGROUN_D, PURPOSE, AND APPLICABILITY Background Purpose and Applicability Overview of this Supplement How to Obtain Additional Guidance PART 2 - MATRIY OF CONIPLIANCE REQ AR.ENIENTS �p PART 3 - COA1IPLIANC.E REQUIRE-1VIENTS Introduction A. Activities Allowed or Unallowed B. Allowable Costs/Cost Principles C. Cash Management D Davis-Bacon Act E. Eligibility F. Equipment and Real Property Management G. Matching, Level of Effort, Earmarking H. Period of Availability of Federal Funds I. Procurement and Suspension and Debarment J. Program Income K. Real Property Acquisition and Relocation Assistance L. Reporting M. Subrecipient Monitoring N. Special Tests and Provisions PART.4 - AGENCY PROGRAM REQUIRE_M_ _ENTS Introduction No. and Agency Name 10 United States Department of Agriculture (USDA) 10.551. - Food Stamm Program 10.557 - Special Supplemental Nutrition Program for Women, InYants' and Cliildten VyIC) 10.561 - State Administrative Funding for the Food Stamp Prograin 14 Department of Housing and Urban Development (HUD) 14.182 - Section_8 New Construction and Substantial Rehabilitation 14.218 - Community Development Block Grants/Entitlement Grants 14.219_- Community Development Block Grants/Small Cities Program 14.128 - Community.Development Block Grant/State's Program 14.231 - Emergency Shelter Grants Promm. http://www.whitehouse.gov/omb/circulars/al 33_compliance/a133_compliance.html 7/2/01 Qhice of Management and Bue t Page 30 of 1.08 (1) The population.or area served was eligible. (2) The benefits paid to or on behalf of the individuals or area of service delivery were calculated correctly. 3. Eligibilityfor subrecipients a. If the determination of eligibility is based upon an approved application or plan, obtain a copy of this document and identify the applicable eligibility requirements. b. Select a sample of-the awards to subrecipients and perform procedures to verity that the subrecipients were eligible and amounts awarded were within,funding limits. F. EQUIPMENT AND REAL PROPERTY MANAGEMENT Compliance Requirements Equipment Management Title to equipment acquired by a non-Federal entity with Federal awards vests with the non- Federal entity. Equipment means tangible nonexpendable property, including exempt property, charged directly to the award having a.useful life of more than one year and an acquisition cost 1 of$5000 or more per unit. However, consistent with a non-Federal entity's policy, lower limits may be established. A State shall use, manage, and dispose of equipment acquired under a Federal grant in accordance with State laws and procedures. Subrecipients of States who are local governments or Indian tribes shall use State laws and procedures for equipment acquired under a subgrant from a State. Local governments and Indian tribes shall follow the A-102 Common Rule for equipment acquired under Federal awards received directly from a Federal awarding agency. Non-profit organizations shall follow the provisions of OMB Circular A-110. Basically the A-102 Common Rule and OMB Circular A-110 require that equipment be used in the program which acquired it or, when appropriate, other Federal programs. Equipment records shall be maintained; a physical inventory of equipment shall be taken at least once every two years and reconciled to the equipment records, an appropriate control system shall be used to safeguard equipment, and equipment shall be adequately maintained. When equipment with a current per unit fair market value in excess of$5000, is no longer needed for a Federal program, it may be retained or sold with the Federal agency having a right to a proportionate (percent of Federal participation in the cost of the original project) amount of the current fair market value. Proper sales procedures shall be used that provide for competition to the extent practicable and result in the highest possible return. The requirements for equipment are contained in the A-102 Common Rule (§_.32), OMB Circular A-110 (§_.34), Federal awarding agency program regulations, and the terms and conditions of the award. Real Property Management Title to real property acquired by non-Federal entities with Federal awards vests with the non- http://www.whitehouse.gov/omb/circulars/al 33_compliance/a133_compliance.htm1 7/2/01 Q.flice of Management and Buy' t Page 31 of 108 Federal entity: Real property shall be used for the originally authorized purpose as long as needed for that purpose. For non-Federat entities covered by OMB Circular A-I 10 and with written approval Brom the Federal awarding agency, the real property may be used in other federally-sponsored projects or programs that have purposes consistent with those authorized for support by the Federal awarding agency. The non-Federal entity may not dispose of or encumber the title to real property without the prior consent of the awarding agency. When real property is no longer needed for the Federally-supported programs or projects, the non-Federal entity shall request disposition instructions from the awarding agency. (For purposes of this compliance requirement,the awarding agency for recipients under OMB Circular A-110 or the A-102 Common Rule and subrecipients under OMB Circular A-110 is the Federal agency providing the funding. The awarding agency for subrecipients under the A- 102 Common Rule is the pass-through entity.) When real property is sold, sales procedures should provide for competition to the extent practicable and result in the highest possible return. If sold, non-Federal entities are normally required to remit to the awarding agency the Federal portion (based on the Federal participation in the project) of net sales proceeds. If retained, the non-Federal entity shall normally compensate the awarding agency for the Federal portion of the current fair market value of the property. Disposition instructions .may also provide for transfer of title in which case, the non-Federal entity is entitled to compensation for its percentage share of the current fair market value. The requirements for real property are contained in the A-102 Common Rule (§_.31), OMB Circular A-110 (§ 32), Federal awarding agency regulations, and the terms and conditions of the award. otAEN"ro ,t,.0 OGN cd roG9 �I I AN DEV evo Real Estate Assessment Center PHA-Finance FINANCIAL DATA SCHEDULE LINE DEFINITIONS AND CROSSWALK GUIDE January 31, 2000 / Financial Data Schedule Line Definitions and Crosswalk Guide - ���� CONTENTS '� ���2 ���ama�m� nu"oc SUMMARY{]FCHANGES.................................................................................................................I SUMMARY...................................................................................................................2 INTRODUCTION -_-__---____-'_--_-__-------_'__._--__-_-----3 GETTING STARTED.------_---_'_----_-__-_-_-_--__---...---_-_---_--.4 ACCOUNTING AND REPORTING STANDARDS_-._.-.--~-_----------.--'-6 ASSETS............................................................. ........................................................6 LIABILITIES '--'---------~-------'—'-----'--'------6 REVENUE............ ....................................................................................................6 EXPENDITURES---___'__---_-_'--____----_-'_'---.-__6 FDS DEFINITIONS AND USING THIS GUIDE................................................7 ASSETS......................................................................................................................8 CURRENTASSETS................................................................................. ................@ ASSETS....................................................................................I6 LIABILITIES AND EQUITY..'__'-_--_------_---_'_-------_'21 LIABILITIES ______'_--______-_'_-_.---_'_-'--_---.--_--2I CURRENT LIABILITIES-_-----__-.-----_---_----_-----_---2I NON-CURRENT LIABILITIES............................................................................2M EQUITY. ...'.............._........................................................._........'..........................''27 REVENUE...............................................................................................................3lEXPENSES ' -_____________________.___---------_-34 OTHER FINANCING SOURCES ...........................................................49 � DATACOLLECrION FORM..........................................................................................................56 APPENDIX A.-ACCOUNTING MfTH{}IJ DIFFERENCES----------.------..6O APPENDIX 8' - FDS LINES REQUIRED BY FASS......................................................................64 � � REAL CENTER � � � Financial.Data Schedule i ine Definitions and Crosswalk Guide INTRODUCTION The Financial Data Schedule(FDS) was created in order to standardize the financial information reported by Public Housing.Authorities (PHA)to the Department of Housing and Urban Development(HUD),Real Estate Assessment Center(REAC). REAC currently requires PHAs to report their accounting information using generally accepted accounting principles (GAAP)based on either governmental or enterprise fund accounting. REAC will use the FDS to analyze the PHA financial data,in conjunction with other performance measurements, to help ensure the success of the PHA programs. This guide is.to provide assistance with the preparation of the FDS. This guide is arranged based on the FDS line.numbers and includes the following: • a description or definition of the line item • a summary of the amounts which should be reported on the line(by cross reference to the current suggested chart of accounts per HUD handbook 7510.1 and changes shown in the GAAP Conversion Guide) PI-IAs are able to choose governmental fund accounting or enterprise fund accounting, as appropriate. Enterprise fund accounting applies full accrual basis accounting. Government fund accounting-applies either full accrual basis accounting or modified accrual basis accounting. REAC has determined that full accrual basis accounting is the preferred method, therefore this guide emphasizes that method. There are some differences in the way that assets, liabilities;revenues and expenses are accounted for based on the method chosen. This guide includes a table,as Appendix A,summarizing the differences by account category. REAL ESTATE ASSESSMENT CENTER 3