Tips for Effective Capital Asset Reporting for School Districts
by James Shankland, CPA, Audit Manager
Posted on October 10, 2019
As your school district prepares for its upcoming audit, you may be scrambling to get everything in order – including finalizing the District’s general ledger, reconciling cash records to those of the County Treasurer, and of course, preparing capital asset schedules.
Generally speaking, capital assets usually represents the largest account balance on your district’s financial statements, meaning your auditors will want to take an even closer look than they might for other areas, in order to ensure the financial statements are free from material errors.
Before we begin, it’s a good idea to take some time to review your district’s capital asset policy, which should provide you with all the pertinent information and guidance related to property control. For example, it should include your district’s definition of a capital asset, including the capitalization thresholds for each class or category of assets, which is usually $5,000, but can be set lower if districts so choose.
Your first step should be to identify how and when capital acquisitions will be accounted for. Ideally, districts should take a proactive approach to capital assets reporting, rather than a reactive one. By implementing a process where capital purchases are tracked, reviewed, and accounted for on a monthly or quarterly basis, district personnel can avoid having to go back and review purchases for the entire year to determine what needs to be captured as a capital asset.
Individuals responsible for approving purchases should evaluate whether or not an item should be capitalized at the time of purchase, and notify the individual in-charge of the capital assets schedule immediately to alert them that an asset will need to be included on the listing. However, depending on the size and complexity of your district, it may be more prudent to do this periodically (say, at the end of each month) rather than on a continuous basis.
A strong inventory process is also important for effective capital asset reporting. Periodic physical inventories should be conducted and reconciled to the capital assets listing. The Uniform System of Financial Records (USFR) requires that districts perform a physical inventory of equipment at least every 3 years. However, for items purchased with federal dollars, Uniform Guidance requires an inventory at least once every 2 years. Depending on the size of your district, an inventory may be able to be completed by only a small team of individuals, or it may require the cooperation and collaboration of several departments across numerous physical locations, so make sure you plan accordingly.
There are other considerations to make, too, such as what time of year to conduct the inventory, and if you will use a bar code scanner or sequentially numbered inventory sheets. Once the physical inventory is complete, the capital assets listing will need to be updated for the results of the inventory, which may include removing long-disposed of assets or adding something that was previously missed. In addition to being required for effective capital asset reporting in the District’s financial statements, having strong inventory and physical controls helps prevent theft, loss, and misuse of district property.
Finally, your district will want to perform a capital outlay reconciliation. This reconciliation, performed at the close of the accounting period after all encumbrances have been included, compares expenditures coded to capital outlay object codes as outlined in the USFR Chart of Accounts with the dollar amount of assets added to the capital assets listing. Naturally, some discrepancies will exist. For example, you may use a capital outlay object code to purchase furniture and furnishings, but that purchase would not be capitalized if the unit cost of those furnishings was less than $5,000.
The point of the reconciliation is to identify and account for all of these discrepancies to ensure completeness of the capital assets schedule; that is, to ensure that every item that should have been capitalized was added. An employee who is otherwise independent of custodial functions related to capital assets should perform this reconciliation, and district management should review and approve shortly thereafter.
Now, all that is left to do is to calculate and run depreciation expense, and provide all of the necessary reports to your auditor! Some of the reports you will want to have readily available include depreciation expense reports by both asset category and GASB function, additions and disposals listings for the current year, a copy of the completed physical inventory, and the aforementioned capital outlay reconciliation. Your auditor will likely want to see supporting documentation for capital acquisitions and disposals, so make sure to keep that information handy, as well. And if you have on-going construction projects, those will need to be summarized and reported separately.
Implementing the above processes and recommendations will help avoid possible audit findings and give you and your auditor confidence that your district’s capital assets have been reported accurately and completely. Keep in mind that this list is not entirely comprehensive. We recommend reviewing the Property Control section of the USFR in detail to ensure compliance.