On June 18,2020, President Cross approved a revision to SYS 300-02, Interim: Capital Equipment Physical Inventory Review Extension to provide additional time for institutions with a review due to be completed in 2020 additional time to complete the process.
Original Issuance Date: December 8, 1977
Last Revision Date: February 20, 2018
1. Policy Purpose
The purpose of this policy is to establish systemwide parameters for maintaining accountability for capital equipment.
2. Responsible UW System Officer
Assistant Vice President for Financial Administration
This policy applies to each UW system institution and covers parameters for maintaining an inventory of capital equipment and performing financial reporting and indirect cost calculations. It also includes provisions for property purchased in whole or in part with federal funds.
Accurate maintenance of property records is essential to assure safeguarded assets, financial accountability, reporting accuracy, adequate insurance coverage and efficient utilization of property already on hand.
Capital equipment: any single asset which has an acquisition cost of $5,000 or more and a useful life of at least two years, whether purchased outright, acquired through a capital lease or through donation. It also includes certain constructed or fabricated items and certain component parts with an aggregate value of $5,000 or more. It does not include real property (land), software or library holdings.
6. Policy Statement
Each institution shall maintain an inventory system and internal procedures which will ensure accountability for capital equipment and the accuracy of information for financial reports and indirect cost calculations.
Specific requirements are outlined as follows:
A. Inventory System Information Requirements
The UW System will identify a system-wide standard asset management tool to be used by all institutions to account for capital equipment. It will contain the data elements listed below and calculate annual depreciation, accumulated depreciation, and book value (cost less accumulated depreciation). Property owned by the federal government shall be identified to indicate federal ownership. Additional inventory requirements for capital equipment acquired with federal funds and federally-owned equipment are marked by an asterisk (*). Works of art should be inventoried. If the criteria listed in Section D.3. are met, works of art should not be depreciated or reported to System Administration for financial reporting purposes.
- Equipment description and manufacturer’s name
- Serial number, model number, and UW inventory number
- Location (building and user department and name of employee if assigned for use off UW premises)
- Type of equipment (generally identified by first two digits of the commodity code)
- Purchase order number
- Acquisition date
- Acquisition cost or value
- Insurance code (identifies “movable” [equipment that is not part of the supporting structure of a building] or “general contents”)
- Source of funding (each UW Fund, if multiple)
- Program code
- Department ID (DEPTID) Unit-Division-Department-Subdepartment of funding department
- Account code
- Account number (if applicable)
- Useful life
- Holder of title if other than the UW
- Source of equipment, including the award number
- Percentage cost basis of purchase between federally funded vs. UW funded
Institutional procedures should be in place to ensure that newly acquired capital equipment is promptly added to the inventory records and that capital equipment removed from use is promptly deleted from the inventory records. Location of capital equipment should be updated as changes occur to ensure that persons taking a physical inventory are able to easily locate all items listed on the inventory system.
B. Write-off and Disposal of Inventoried Items
Any piece of capital equipment which has ceased to function with respect to its regular operation and which is highly unlikely to be used in its present form in the future, must be disposed of and removed from the inventory records. Disposal of capital equipment must comply with Department of Administration, State Procurement Manual chapters PRO-F-1 & 3.
Information regarding capital equipment items which have been removed from the inventory records should be maintained for the current fiscal year plus four years. Ultimate disposition data shall include date of disposal and method of disposal. Method of disposal includes trade-in, sale price, loss, theft or salvage.
C. Physical Inventory Requirements
A physical inventory of capital equipment shall be performed every two years to verify that the capital equipment listed on the inventory records can be located and is in use. The physical inventory should be performed by the institution’s personnel who are trained in statistical sampling and who have no direct responsibility for managing the capital equipment being sampled (unless that responsibility is on an institution-wide basis).
It is recommended that, before the physical inventory, each department be asked to verify, to the extent practical, that all capital equipment for which it is responsible, including that used by employees at home or off the UW premises, can be located and is in use. Inventory records should be updated accordingly to minimize the number of errors in the subsequent statistical sample physical inventory.
Property should be selected for physical inventory on the following basis:
|Book Value or Acquisition Cost||% Selected for Audit|
|Items over $100,000 and all federally titled equipment||100%|
|Items between $50,000 and $99,999||75%|
|Items between $10,000 and $49,999||50%|
|Items less than $10,000||Attribute sample randomly chosen to ensure that the true error rate does not exceed 8% at the 90% confidence level. This means that if the expected error rate is 5%, the sample size should be chosen using a reliability factor of +/- 3%. To meet the statistical test, the error rate in the sample may not exceed 5%. (An error means an item cannot be located.)|
Any difference between quantities determined by the physical inspection and those shown in the inventory records shall be investigated to determine the causes of the difference. Items should be selected in accordance with the above plan based on current book value (cost less accumulated depreciation) unless the sample is more readily selected based on acquisition cost.
D. Financial Reporting Requirements
- Financial Reporting is responsible for presenting fairly the assets of the UW System in its Annual Financial Report. Each institution must report the cost of its capital equipment, the accumulated depreciation and the net book value by the date indicated in the Year End Reporting Instructions. Federally titled equipment should not be included in the report.
- Equipment depreciation is calculated on a monthly basis beginning on the date of service using the useful lives shown in Form A: Capital Equipment Useful Life/Depreciation Schedule and no salvage value.Previously, depreciation was recorded using a full year’s depreciation on a straight-line basis regardless of the month acquired with no salvage value.
- For works of art, a footnote disclosure regarding the estimated current market value in lieu of reporting a cost-based amount is acceptable. Works of art may be excluded from the financial report if the following criteria are met:
- they are held for exhibition, education, or research in furtherance of public service rather than for financial gain;
- they are protected, kept unencumbered (i.e., not pledged as collateral), cared for and preserved; and
- they are subject to a policy that requires the proceeds from sales of collection items to be used to acquire other items for collections.
- The cost of purchased software should not be capitalized for financial reporting purposes since such software is generally licensed and not owned. Software developed in-house should also not be capitalized for financial reporting purposes because the estimated cost of recreating it is not reimbursable under the State’s risk management plan.
- In addition to reporting historical costs and accumulated depreciation of capital equipment as of June 30, institutions are required to reconcile the current June 30 value to the value reported for the preceding June 30 by showing additions, deletions, current year depreciation, write-offs, etc. The amount reported as current year additions per the capital equipment inventory system should be reconciled to the capital disbursements recorded in the accounting system.
E. Indirect Cost Calculations
- Institutions must maintain adequate capital equipment records and conduct physical inventories to support charges for use allowance and/or depreciation claimed in the federal indirect cost proposals. The physical inventory must determine whether the capital equipment exists and is usable, used and needed.
- Use allowance or depreciation cannot be claimed for assets which do not exist or are not being used. Inventory records must include accumulated depreciation when the depreciation method is used. Depreciation should be recorded on a straight-line basis using the useful lives as set forth by this paper (see Form A: Capital Equipment Useful Life/Depreciation Schedule) and cannot be claimed on capital equipment which is fully depreciated. Depreciation or use allowance may be claimed on donated capital equipment based on its fair market value.
- Institutions using the long form proposal must maintain inventory records in the detail necessary to allocate the use allowance or depreciation to proper functions. Use allowance or depreciation cannot be claimed on federal property or capital equipment purchased with federal funds.
- Institutions using the short form proposal must maintain inventory records necessary to exclude use allowance or depreciation on federally funded and auxiliary enterprise capital equipment.
F. Property Purchased in Whole or in Part with Federal Funds
Typically, it is only capital equipment that is purchased in whole or in part with federal funds. However, the provisions of this section also apply if items within the other categories of personal property are purchased in whole or in part with federal funds
Title. Title to property purchased in whole or in part with federal funds normally vests with the University. However, the granting agency retains what might be considered a “lien” on the property which controls equipment management requirements, its use and disposition. The granting agency also retains the right to require transfer of title of property with a current per unit fair market value of $5,000 or more to the federal government or an eligible non-federal party up to 120 days after the end of federal support for the program or project.
If title remains with the federal government, it shall be referred to as “federally titled equipment.” Federally titled equipment should be included in the inventory system. System Risk Management recommends insuring federally titled equipment due to the complex nature of claiming loss reimbursement from the federal government.
Use. Federally titled equipment shall be used as directed by the federal government. Equipment must be used in the project or program for which it was acquired for as long as needed, whether the project or program continues to be supported by federal funds. When no longer needed for the original project or program, the equipment must be used in the following order of priority:
- For projects or programs currently or previously sponsored by the granting agency.
- For projects or programs currently sponsored by other federal agencies.
Disposition. All federally titled equipment, no longer used in projects or programs currently or previously sponsored by the federal government, must be reported to the sponsoring federal agency requesting disposition instructions.
For property with title vested with the University, the federal government may still have control over how the equipment is used, including transfer to another institution, and may have rights to a portion of the proceeds from sale or salvage. Refer to Federal Uniform Guidance (2 CFR 200), granting agency regulations and the grant award for use and disposition restrictions.
7. Related Documents
- Chapter 36.11(1)(a)(b) and (c), Wis Stats, Protection of People; Custody and Management of Property
- Chapter 2, B, UW System Risk Management Manual
- Federal Uniform Guidance (2 CFR 200) Title 2, Grants and Agreements
- Federal Acquisition Guidelines
- Form A: Capital Equipment Useful Life/Depreciation Schedule
- NACUBO Financial Accounting and Reporting Manual, Chapter 300, Accounting for Public Colleges and Universities Reporting as Business-Type Activities
- State Procurement Manual, PRO-F-1, Transportation, Materials Distribution, Disposal
- State Procurement Manual, PRO-F-3, Surplus Property Disposal — Nonvehicles
- Regent Policy Document 22-2 – Disposal of Works of Art
- S. Department of Health and Human Services Grant Administration Regulations (45 CFR Part 74)
8. Policy History
- Revision 6: February 20, 2018
- Revision 5: September 28, 1998
- Revision 4: January 30, 1996
- Revision 3: January 24, 1994
- Revision 2: January 1, 1993
- Revision 1: January 31, 1984
- First approved: December 8, 1977
9. Scheduled Review