CAPITAL ASSETS MANAGEMENT POLICY
To provide for a fiscally sound and carefully considered process of acquiring and disposing of capital assets (also called "fixed assets") with program funds, the following policies and procedures have been established for capital assets management.
CAPITAL ASSETS include:
A. Any single item or group of related items of household furnishings or equipment (including vehicles) whose cost exceeds $1,500.00. A "group of related items" includes, for example, a dinette set, or all the furnishings to initially furnish a new site, even if certain individual items are less than $1,500.00.
B. The cost of a major repair, or improvement to leased or owned property, if the cost exceeds $500.00 and the repair adds to the value or improves the life of the property. Again, the "group of related items" rule applies. If a bathroom is being refinished and the materials cost $350.00, and labor is $450.00, you must capitalize the whole cost of the renovation.
2. CAPITAL BUDGET AND APPROVAL PROCEDURES -- New Purchases:
A. Every year, by no later than May 1st, the Chief Financial Officer and Budget & Contracts Manager will establish a total agency capital budget for the new fiscal year, based on projected revenues and cash flow for the year.
B. Program Directors will assess their needs for new/additional furnishings, vehicles, and property improvements and will submit their requests for the year on properly completed Request for Capital Purchase forms. (See item III below). All requests must be submitted to the Chief Financial Officer by a deadline specified by the CFO.
Program Directors should keep in mind that their current year's and future years' budgets will be affected by capital purchases. That is, the cost of the purchases is charged against the budgets over the "useful life" of the asset (as defined by the State Auditor's Office, through the "depreciation" line item. The "useful life", or number of years over which an asset is depreciated, varies with the type of asset. A schedule of current depreciable lives is attached. In the year an item is purchased only 1/2 year of depreciation is charged, and a full year is charged to the budget each subsequent year until the last year of the "useful life", when the final ½ year is charged.
If a request is made for an additional or replacement vehicle, the budget may also be affected by increased auto insurance costs.
C. In some cases, Division Managers may mandate certain capital purchases if they feel that the condition of a program site or furnishings are adversely affecting the quality of clients services.
D. When all requests are submitted, they will be reviewed by a Capital Budget Committee consisting of the CFO, the Director of Administration and Finance and all Division Managers. The Committee will rank all requests in priority order to be approved based on funding available. In some cases, the Committee may recommend that certain requests be partially approved, or may rank one segment of a request higher than another. The completed list of requests, ranked in order and accompanied by the supporting Request forms, will be submitted to the CEO who will make the final determination as to which requests can be recommended to the Finance Committee for the year. The CFO will determine the timing of the approved purchases, based on cash flow needs.
The final recommended Capital Budget will be presented to the Finance Committee of the Board of Directors for their review and recommendation of approval to the full Board.
E. The Chief Financial Officer will announce approval decisions as soon as possible, at which time approved "Requests for Capital Purchase" forms will be returned to the Program Directors. (A copy of each approved form will be retained by the CFO for Fiscal Department Records.)
NOTE: Approvals, when given, are for specific items, as well as for a dollar limit. Program Directors may not substitute an unapproved item for an approved item, even if they have not expended the total dollar amount approved.
F. All Capital Purchases (except those of an emergency nature) must be complete by May 31st of the year. The original approved "Request for Capital Purchase" form must be attached to receipts or bills for these purchases and submitted to the Fiscal Department for payment. If items from the same request for Capital Purchase form must be purchased at different times or from different vendors, the request form should be photocopied and a copy of it should be attached to each bill, with the applicable items for the bill marked off.
G. After completion of the formal, annual capital budgeting process, (i.e. within the current fiscal year), approval may be given for additional capital purchases under the following circumstances:
1. Emergency purchases such as those required by licensing or resulting from fire or other catastrophes;
2. Initial furnishings required by a brand new site;3. Replacement of items which are too deteriorated to be repaired.
4. Other capital purchases required due to a significant change in program circumstances.
Approval of "off-cycle" capital purchases as described above will be determined jointly by the CEO, Director of Administration and Finance, and CFO, with final approval by the CEO.
Any single capital purchase in excess of $25,000 which is not included in the regular annual capital budget must also be submitted to the Finance Committee of the Board of Directors in advance for approval. Purchases between $15,000 and $25,000 of items not in the annual capital budget must be reported to the Finance Committee but do not require advance approval.
3. CAPITAL APPROVAL PROCEDURES - Replacements
At times it may occur that during the year an unexpected need arises for replacement of a capital asset (e.g. a program vehicle becomes unsafe for use.) In planning the capital budget for the fiscal year, the CFO and Budget & Contracts Manager will allocate a certain amount of the budget to respond to such contingencies. The approval process for this type of request falls into two categories:
A. Replacement within the program budget.
Sometimes it may be possible to derive all the capital funds needed for a replacement from the existing program budget. For example, if a program currently has an old car which requires replacing, there may be enough funds available in the depreciation and auto maintenance lines in the existing budget to cover the down-payment and monthly payments for the year on a new car (especially if maintenance costs have been exceptionally high). Therefore, the first step should always be to get some initial cost estimates and consult with the Budget and Contracts Manager to see if this is the case.
If the cash flow required for the replacement can be managed totally within the existing budget, this should be noted on the "Request for Capital Purchases" form, along with an explanation as to where the funds are coming from. If this is the case, the request will be approved as a matter of course.
If any part of the replacement requires additional funds (e.g. monthly payments can be handled within the existing budget but not a down payment), the procedures under "B" should be followed.
B. Replacement requiring additional funds
If a replacement or emergency purchase is required that cannot be covered from the existing budget, a "Request for Capital Purchase" form should be completed and submitted to the CFO, indicating the nature of the request and the programmatic reason that the purchase cannot be deferred until the following fiscal year. If it is deemed necessary, the CFO will authorize the expenditure from the emergency capital budget.
4. INSTRUCTIONS FOR COMPLETION OF THE "REQUEST FOR CAPITAL PURCHASES" FORM
A. List items as specifically as possible.
B. List an estimated cost for each item.
C. Use separate forms for unrelated items, (i.e. use separate forms for purchases for two different sites, or for furnishings as opposed to leasehold improvements).
5. PURCHASING AND COMPETITIVE BIDS REQUIREMENTS
A. Consultation with Purchasing Manager
Before any capital purchase is made, the Purchasing Manager should be consulted for vendor and/or manufacturer recommendations, as well as availability of resource materials such as industry buying guides, Consumer Reports, etc. The Program Director may also request the assistance of the Purchasing Manager in researching the item(s) to be purchased. When purchasing computer equipment, the Computer Technology Specialist must be consulted.
B. Competitive Bids Requirement
General sound business practices dictate that before any capital purchase is made some "comparative shopping" and research should be done to ensure that we are receiving the best value for our money. State and federal regulations also require that before a "Major Purchase" is made, whether of goods or services, formal competitive bids must be obtained and documented. A "Major Purchase" is defined as either (1) any single purchase totaling more than $5,000.00, whether the purchase is a physical asset, a major repair, or a service; or (2) an accumulation of items totaling more than $5,000.00 (e.g. furnishings for an entire apartment, or a consultant contract for services to be provided over a period of time).
Documentation of the bid process, including the items listed below, must be submitted to the Chief Financial Officer before any purchase agreement, check request, or other purchasing document is approved. The bids should be summarized on a "Major Purchase Bid Record," with copies of the vendor bids attached.
1. A description of the product or service to be purchased, in sufficient detail to allow for a legitimate competitive process.
2. Documented evidence that competitive bids were received sufficient to make the selection a legitimate business choice. Generally, three bids is considered appropriate, although individual circumstances might warrant a higher or lower number. If competitive bids are not possible given a specialized level of expertise or product, clear evidence of attempts to locate other bidders can be substituted.
3. A brief rationale on why the successful bidder was selected. The goal is to purchase the best product in the most cost-effective manner, which may or may not lead to the lowest price quote. If the vendor selected was not the lowest bidder, other factors affecting the decision should be clearly stated.
4. Proposed contract or other purchase agreement with the vendor, outlining the details of the agreement and incorporating price, warranties, etc., as appropriate to the particular purchase. Note that neither Program Directors nor Division Managers have authority to sign contracts or other agreements on behalf of ServiceNet. The contract or other purchase agreement will be signed by the Chief Financial Officer or Director of Administration and Finance after s/he has reviewed the documentation of the bid process and (if the purchase is a capital asset) verified that the item was approved in the Capital Budget process.
6. DISPOSAL OF CAPITAL ASSETS
Whenever a Program Director considers it necessary to dispose of a capital asset, for whatever reason, s/he must notify the CFO of the reason for and nature of the disposition. If the asset is being sold, whether to a client or another party, the CFO must approve the sale price and the terms of the sale in advance of the sale.