Managing University Capital Equipment
Responsible University Officer(s):
- Associate Vice President and Controller
- Director of Accounting Services
The University has a significant investment in equipment, representing long-term commitments to fulfill its mission. The University owns and controls all equipment purchased with University funds, unless otherwise stipulated by the funding source. Custody and use of all assets is the responsibility of the various colleges and departments.
Safeguarding the University’s capital equipment assets is a priority for each custodial department and those individuals responsible for those assets. Vigilance must be maintained to ensure that equipment assets are not lost, stolen or vandalized. Departments and their personnel should always try to be cognizant of risk regarding their equipment assets and do whatever possible to minimize that risk. Assumption of security and complacency regarding possible risk are the two most significant factors leading to asset loss.
Inventory Services administers capital equipment assets and is responsible for the centralized accounting and reporting.
Equipment purchases must meet all of the following requirements to be considered a capital equipment asset.
- The cost of the equipment must be $5,000 or greater.
- The University must have title or ownership rights of the equipment
- The equipment must have a useful life of 1 year or greater.
Any equipment purchase that does not meet all of the above criteria must be recorded to the non-capital equipment expense accounts.
Equipment Upgrade expenses must meet all of the following requirements to be considered a capital equipment upgrade:
- The expense must be $5,000 or greater.
- The expense must increase the productivity or capacity of equipment beyond its original intent.
- The expense must extend the useful life by 1 year or greater.
Any equipment expense that does not meet all of the above criteria must be recorded as repairs and maintenance.
Administration of capital equipment
- Departments must receive prior approval before a sale, transfer or donation of University capital equipment assets to an entity external to the University is conducted.
- Capital equipment assets must be fully depreciated to be donated.
- Disposal of all property will be in a manner consistent with agency funding guidelines and public law, as well as the University’s interests.
- Whenever possible, capital equipment assets within the University must be re-used or reassigned when the original project or need for which it was acquired has been completed, unless otherwise restricted by the funding source.
- Off-campus use of University capital equipment assets will be permitted only when it is for a business related purpose contributing to the University's mission.
- Non-capital equipment should be tracked internally by a department when being used off campus, but Inventory Services need not be notified.
- Per IRS guidelines, capital equipment donated to the University must be retained for a minimum of three years from the “in service date” prior to disposal.
- Departments are responsible for covering the loss and/or undocumented disposals of capital equipment assets with net book depreciable value from their departmental equipment assets carryforward.
Equipment bought on sponsored projects
Departments may, at times, purchase capital equipment on sponsored projects with sponsor agency approvals. In these cases, if justified, equipment could be purchased on the sponsored accounts. Some awards (like an NIH Fellowship) provide an institutional allowance, which is to be used to benefit and/or support the trainees. These funds are generally not restrictive and can be used as the Principal Investigator sees fit, as long as it will benefit the trainees on the grant.
In all cases where capital equipment is purchased using sponsored funds in the University general ledger system, the equipment is the property of the University and is subject to all related oversights and procedures.
If a capital equipment asset is purchased with sponsored funds, and the Principal Investigator or fellowship recipient decides to leave the University and wishes to take the item (e.g. research equipment) with them, they or the external entity must purchase it from the department in adherence with Administrative Policy: Selling Capital Equipment to External Entities or Employees.
Note: Non-sponsored fellowship accounts may also purchase equipment as long as they do so with approval of the fellowship granting agency and the purchase is an appropriate use of funds per the fellowship.
REASON FOR POLICY
This policy was established to ensure that:
- capital equipment assets are properly acquired and retained by the University:
- the accounting treatment is in compliance with generally accepted accounting principles (GAAP), the Governmental Accounting Standards Board (GASB), and other regulatory agencies; and
- University financial reports are accurate related to asset values, depreciation and categorization.
Asset values are reported on the University financial statements, subject to external examinations and provide the means of allocating costs to accounting periods which are used to establish the University's F & A rate. This policy establishes various requirements to help ensure the accuracy of asset values; that equipment duties are segregated; off-campus use is restricted; and ongoing verification is made.
- Acquisition Cost - Constructed Equipment
- Includes cost of materials and University internal service center costs used in the course of construction. University payroll expenses, other than those included in internal service center charges, are not included in the cost of constructed equipment.
- Acquisition Cost - Donated Assets
- The fair market or appraised value at the date of the gift. If market value or appraised value is not available, the gift will be recorded at an estimated depreciable value.
- Acquisition Cost - Purchased Equipment
- Includes the invoice price and the cost of any modifications, in transit, insurance, freight (to or from the University) and is reduced by any trade-in. Installation is also included when those costs can easily be identified with the equipment acquisition.
- Capital Equipment
- Any movable, nonexpendable personal property equipment item, not permanently affixed to a building, with a life expectancy of more than one year and an acquisition cost of $5,000 or more per unit.
- Capital Equipment Upgrades
- Improvements that increase the value or extend the useful life of the equipment can be added to the cost of a capital equipment asset. To be considered an upgrade to a capital asset, the expense must meet all of the following criteria:
- Expense must be $5,000 or greater
- Expense must increase the productivity or capacity of equipment beyond its original intent
- Expense must extend the useful life by 1 year or greater.
Note: An expense that maintains the asset in its current condition or restores it to its original condition is expense not capital.
- An asset that a University department holds for sale or use in providing goods and/or services to customers. An example of inventory would be computers sold by the UM Bookstore. Capital equipment assets are NOT inventory.
- Non-Capital Equipment/Expendable Material
- Personal property items with a cost of less than $5,000, a useful life of less than one year, or the University does not have ownership title.
- The University has title to all equipment assets purchased on University accounts or transferred here from another institution unless it is specifically stated in a government grant or contract that the government retains title to the equipment purchased on that award.
- Personal Property
- A tangible piece of movable property. It includes such items as equipment, library holdings, art work, livestock, and supplies. The University has ownership of all Personal Property.
- Any item purchased, donated or acquired through trade, regardless of value or condition. Property includes all real estate, equipment, furniture, materials, library holdings, supplies, livestock, inventories, or any item that may be used or sold.
- Accounting Services
- Responsible for the accurate reporting on all capital assets for the University's financial statements.
- Assist departments in establishing proper methods for accounting for inventories.
- Dean, Department Head or Administrative Officer
- Approves the transfer, sale or disposal of University capital equipment assets outside the University.
- Inventory Services
- Manages the centralized accounting and reporting of University capital equipment assets in the Asset Management module.
- Approves all disposals of capital equipment, observing agency funding guidelines when appropriate.
- Reviews expenses coded to capital to ensure all such equipment meets the capitalization criteria, and establishes and executes a periodic inspection to meet Federal and external audit requirements, and to support data for inclusion in the computation of the F & A Rate.
- Makes a timely initial inspection and tags capital equipment assets that meet the capitalization criteria.
- University Departments
- Must properly use and protect all University property in their custody. Should develop their own clear, consistent policies and procedures for dealing with property within their units. This includes acceptable use, disposal, transfer and recording of property locations, inventory counts, and physical security measures in departmental policies and procedures. University Departments may fine-tune policies and procedures to meet their own unique operating guidelines, but this document should provide baseline or minimum requirements with regard to assets. University departmental policies cannot supersede and must be in compliance with this University policy. The goal is to motivate compliance among staff, faculty and the University community by presenting benefits of strong financial management and control, as per the Board of Regents Policy: Code of Conduct.
- Ensure employees use measures to secure equipment including locking lab doors when lab employees are not in attendance; and locking down portable equipment such as laptops, video projectors, etc.
- Appoint individuals to be responsible for inventory; capital equipment asset disposals and transfers; and physical security. These individuals review Inventory Services reports for accuracy and completeness and report theft, loss, or disappearance of capital equipment assets to University Police and Inventory Services.
- Keep a current record of property located off-campus in the form of descriptions, capital equipment asset tag numbers, time period, location of off-campus property, and person(s) in charge of the property.
- Report capital equipment assets donated to the University to Inventory Services for capitalization.
- Plan, budget and approve capital equipment purchases as well as the custody, safeguarding, and maintenance of capital equipment assets.
- Ensure that capital equipment asset purchases are classified with the proper capital asset account code.
- Follow proper procedures for sale of University-owned capital equipment assets, obtaining Fair Market Value or Net Book Value for the sale. Capital equipment assets bought on sponsored funds will transfer to other institutions with department head's approval. Assets bought on non-sponsored funds must follow sale procedure.
- Work with Inventory Services to:
- Obtain approval prior to disposing of unwanted or unserviceable property, observing agency funding guidelines when appropriate.
- Obtain approval prior to turning over unused or underused equipment and furniture to the University Reuse Program (or to University Computer Services for computer equipment) so that others within the University may use them.
- Obtain approval prior to transferring capital equipment assets to another institution.
- Obtain approval prior to donating capital equipment assets outside the University. Capital equipment assets identified for donation must be fully depreciated to be considered for approval.
To dispose of capital equipment assets that contain University data, please reference the following Office of Information Technology (OIT) policies:
- Administrative Policy: Information Security
- Appendix: Media Sanitization Standard
- Administrative Policy: Research Data Management: Archiving, Ownership, Retention, Security, Storage, and Transfer
- Board of Regents Policy: Accessioning and Deaccessioning Museum Collections
- Board of Regents Policy: Code of Conduct
- Administrative Policy: Acquiring and Disposing of University Real Estate
Other Related Information
- OMB Uniform Guidance
- Federal Acquisition Guidelines
- U.S. Department of Health and Human Services Grant Administration Regulations (45 CFR Part 74, Subpart O)
- NACUBO Financial Accounting and Reporting Manual, Chapter 400
- December 2014 - References to A-21/A-110 changed to OMB Uniform Guidance in Related Information.
- June 2014 - Major Revision, Comprehensive Review. 1. Updates the business process to record equipment purchases on an expense account at the departmental level. 2. Specifies that capitalization and depreciation are recorded on a central chartstring. 3. Adds a policy section on Equipment bought on Fellowships. 4. Replaced 6 procedures with 14 new procedures, some of which are reorganized from the past procedures. 5. Primary Contact update.
- December 2013 - Major Revision. Threshold to be considered capital equipment increased from $2,500 to $5,000.
- July 2008 - Policy completely revised to address the Enterprise Financial System rollout. All procedures updated to reflect use of PeopleSoft for the Enterprise Financial System (EFS). Added new forms.
- January 2004 - Added Appendix A: Common Audit Recommendations - Equipment.
- February 2003
- Policy entitled Property, dated December 1990 last updated in August of 2001.