the Education Environment

snowpeaschocolateManagement

Nov 18, 2013 (3 years and 4 months ago)

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Patrick Collins

Business Development Manager

630/705
-
9282


Illinois ASBO’s 56
th

Annual Conference

May 17, 2007


Fixed Asset Management in
the Education Environment

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Overview


Why Manage Fixed Assets


Review GASB 34 Reporting Requirements


Common Audit Exceptions


Physical Inventories/Verifications


Insurance Appraisals

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Why Manage Fixed Assets?



Federal Reporting Requirements


GASB 34 Reporting


Depreciation


Qualified audit


Risk Management


Insurance Placement


Support of Proof of Loss

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Why Manage Fixed Assets?


Cont.

Maximize the use of district resources


Reutilization


Life cycle management and planning


Management information for decision making


Provide required level of service


Loss, damage, and destruction avoidance


Good stewardship to: School Board, Local Press, Public

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GASB 34 Reporting Requirements



Timetable


Phase
-
in approach starting for FY ending June 30, 2003


By June 30, 2005 all school districts should be compliant


Reporting Requirements


Capital assets reported at historical or estimated original cost


Capital assets are to be depreciated over estimated useful life


Capital asset reported net of accumulated depreciation in
Statement of Net Assets


Depreciation expense should be reported in the Statement of
Activities



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GASB 34 Capital Asset Reporting

Report Depreciation by Function:


1100 Regular Instruction


1200 Sp. Ed. Instruction


1300
-
1900 Other Instruction


2100 Pupil Services


2200 Instructional Services


2300 General Admin. Srvs.


2400 School Admin. Srvs.


2500 Business Services


2550 Transportation Services


2600 Central Services


2540 O&M

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Common Audit Exceptions


Useful life assignment inconsistent with Board
Policy/Capital Asset Policy


Depreciation method does not match Board Policy/Capital
Asset Policy


Function data not reported


Buildings not reported by Function


Beginning Balance does not match Ending Balance

from
previous year


Assets fully depreciated at transition


Federal funds not being tracked ($500 level)


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Common Audit Exceptions


Cont.


Land Account


Often reported with no detail backup


If cost information in lacking, can the assessor provide with confidence,
estimates of original cost at the date of acquisition or donation?


Estimating historical land values


Buildings/Construction Costs


Entry for Land/Improvements to land to prepare site (non
-
depreciable)


Entry for land improvements
-

parking lots, sidewalks, lighting,
landscaping, etc. (useful life shorter)


Entry for building cost



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Inventory Control vs. GASB 34
Reporting

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GASB 34 Capitalization Threshold

Issues to Consider


Property Record Maintenance


higher capitalization threshold equates to accounting for big items


easier


sophisticated, recognizable items


less movement


fewer items


economies


efficiencies


auditability



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Inventory Control Threshold


Items that require special attention to ensure legal compliance


Items that require special attention to protect public safety and avoid
potential liability


Items that require special attention to compensate for heightened risk of
theft (“walk away” items)


Individuals responsible for controlled capital
-
type items should prepare
and maintain a complete list of those items each year within the
department


Departments should certify each to the central accounting function (or
other designated finance function) that updated lists of controlled capital
-
type items are on file and available for inspection


The central accounting function should periodically verify data on
controlled capital
-
type items on file in each department.




GFOA recommending practice on “Ensuring Control over
Noncapitalized Items” (2005):

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Physical Inventory

Objectives


To confirm assets in the system are physically exist


Assets are appropriately recorded in the system


Records are accurate as to location, description,
accountability, etc.


Identify excess, unserviceable or obsolete property


Assesses Health of the System!

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Working with outside firm to verify

capital asset schedule


Existing data file


Physical verification of equipment


Tagging


Inspection of buildings and improvements (for insurance?)


Review client data for non
-
tagged assets


Reconciliation


Report preparation


Capital Asset Reports


Exception Reports


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Property Insurance Appraisals


Used to establish Cost of Reproduction New for insurance placement


Buildings


Insurable Land Improvements


Contents


Every 5 years


Support of Proof
-
of
-
Loss


In conjunction with “verification” or accounting services



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Property Insurance Appraisals
-
cont.


Cost of Reproduction New

-

Estimated amount required to
reproduce a
duplicate or a replica

of the entire property at one time in
like kind and materials

in
accordance with current market prices for materials, labor, and manufactured
equipment, contractors' overhead and profit, and fees, without provision for
overtime, bonuses for labor, or premiums for material or equipment.
Synonymous with the insurance industry term “replacement cost”.

VS.


Replacement Cost New

-

the estimated amount required to replace the entire
property at one time with
a modern new unit

using the most
current technology
and construction materials

that will duplicate the production capacity and utility of
an existing unit at current market prices for materials, labor, and manufactured
equipment, contractors’ overhead and profit, and fees, but without provision for
overtime, bonuses for labor, or premiums for material or equipment.



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Property Insurance Appraisals
-
cont.

Property Insurance Update 2001
-
2005


Post 9/11/01 hardening of the property insurance market


Historical underwriting losses were attributable to significant valuation
issues for the insured properties.


Valuation issues were attributable to the lack of accuracy and
completeness of data obtained from the insured.


Increased scrutiny of the insurance industry by Federal and State
regulators


Significant losses related to the hurricanes in the gulf coast.


Difficulty placing coverages in certain sectors


Reinsurance market is beginning to dictate changes in the underwriting
process


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Property Insurance Appraisals
-
cont.


changes in insurance market


Improved underwriting discipline dictated by the reinsurance markets


Increased emphasis on a consistent disciplined approach to
underwriting:


Exposure data analysis (COPE data)


Loss experience analysis


Management assessment


Increased market specialization for carriers


Increased focus on geography


Discontinuance of blanket coverage


Appraisal requirements for insured properties


Discontinuance of contingent broker commissions


Increased financial transparency (Sarbanes
-
Oxley)


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Property Insurance Trends 2006
-
2007


Natural Catastrophe (Wind, Quake & Flood) Exposures:


Increased pricing


Increased windstorm deductibles


Decreased coverage capacity


Tightening of underwriting guidelines


Closer attention to aggregate geographic risks


Increased emphasis on portfolio catastrophe modeling


New catastrophe models have increased expected losses


Non
-
Cat. Property



Decreases


Time to get appraisal

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Inflation: What’s Happening in
Construction Cost Trends?


Moderate construction inflation over the last fifteen years (1%
-

3%).


Significant construction inflation in 2004 (10.5%).


Slowing but not back to normal in 2005 (5.5


6.5%)


Slowing again 2006 (4.4%)



20%+ Inflation in 3 years!!!!!!!!

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Inflation: What’s Happening in
Equipment Cost Trends?

Equipment Inflationary Increases, 1990


January 2006:


Machinery & Equipment Cost Trends

Total Increase

Annual
Average

Marshall & Swift


Ind. Average

+ 40.1%

+ 2.15%

FM Global


Industrial Equipment Composite

+ 34.4%

+ 1.85%

BLS
-
PPI Finished Goods Composite

+ 36.3%

+ 1.95%

Sources cited:


Marshal Valuation Service
-

Marshall & Swift Quarterly Cost Index, industrial Equipment Average of All

FM Global


Industrial Cost Trends, Industrial Equipment Composite

U.S. Department of Labor, Bureau of Labor Statistics
-

Producer Price Index, Finished Goods Seasonally Adjusted
-

Table WPSSOP30
00

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Inflation: What’s Happening in
Equipment Cost Trends?

Machinery & Equipment Cost Trends

2004

2005

2006

Marshall & Swift


Ind. Average

+ 7.5%

+ 4.7%

+ 6.2%

FM Global


Industrial Equipment Composite

+ 2.6%

+ 3.0%

+ 2.9%

BLS
-
PPI Capital Equipment

+ 2.4%

+ 1.3%

+ 1.8%

Equipment Inflationary Increases, 2004


January 2006:

Sources cited:


Marshal Valuation Service
-

Marshall & Swift Quarterly Cost Index, industrial Equipment Average of All

FM Global


Industrial Cost Trends, Industrial Equipment Composite

U.S. Department of Labor, Bureau of Labor Statistics
-

Producer Price Index, Capital Equipment
-

Table WPUSOP3200

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Benefits of Insurance Appraisal


Determine the adequacy of insurance coverage:


completeness of property listing


accuracy of property values


Improved risk management


Improved marketability to underwriters


Serves as a basis for the allocation of premiums


Serves as a basis for the preparation of a proof
-
of
-
loss



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Now what?


Capital asset/insurance reporting policies


Capitalization Threshold


Useful Life Schedule


Set guidelines for property management



Set forth specific procedures


Acquisition


Retirement


Transfers


Tagging


Inventory

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Reports



Capital Asset Reporting for GASB 34


Summary Reports by Account


Summary Report by Function


Detailed Record


Insurance Appraisals


Summary Report (Statement of Values)


Buildings, land improvements, contents


Detailed Reports