Chapter 2

POLICIES

Capitalization Policy - The State Comptroller's Office has established a Statewide policy for the capitalization of assets controlled by agencies. If the asset meets the following criteria it will be deemed an asset and will be disclosed on the Comptroller's annual financial statements:

1. Separate - an asset is tangible in nature and complete.

2. Multi-Year Life - an asset has an expected useful life of one or more years.

3. Significant Value - an asset which, individually, has a value or cost of $1,000 or more at the date of acquisition. Agencies desiring to capitalize assets with a value less than $1,000 due to programmatic requirements or other justifiable reasons, should write to the State Comptroller for an exception to the $1,000 limit, stating the reason and justification for the exception. If an item is in storage and has a value or cost of $1,000, it is to be treated as an asset and entered in the Core-CT Asset Management Module.

Controllable Property - Controllable property is tangible property with a unit value less than $1,000, an expected useful life of one or more years and/or, at the discretion of the agency head requires identity and control. It is mandatory that each agency maintains a written listing of controllable property that has been approved by the agency head. Such assets must be identified and controlled because of their sensitive, portable, and theft-prone nature. The item must be tagged and maintained on the agency's perpetual inventory. Different color or style tags can be used to separate controllable items from capitalized items. Controllable items are to be coded as minor equipment 54150.

Similar to capitalized property, controllable property is subject to the requirements of this manual regarding security, maintenance and utilization. These assets will be flagged with a control indicator in order to distinguish them from capitalized assets. Controllable assets must be inventoried on a regular basis, possibly more frequently than capitalized assets due to the nature of the items listed.

Examples of sensitive, portable and theft-prone items are listed below, however this list is only a suggestion. Individual agencies may add or delete items in this list based on the nature of their business.

Appraisals: Works of Art and Historical Treasures - Appraisals for all permanent collection pieces exceeding $10,000 should be conducted every five (5) years by an expert in the field.

Appraisals are no longer a mandatory requirement but highly recommended when resources are available.

Capital Asset Expenditure EPM Report - This report may be used as a tool to assist state agencies in compiling the Annual Physical Inventory of all Real and Personal Property, CO-59. This report lists all capital purchases for each agency charged to account codes 55610 through 55890, Capital Outlays-Land; Capital Outlays-Equipment; Capital Outlays-Buildings and Improvements. The report is now an EPM report in Core-CT.

Capital Equipment Purchase Fund - The Capital Equipment Purchase Fund (CEPF) is authorized pursuant to Section 4a-9 of the General Statutes. The Secretary of the Office of Policy and Management administers the fund. “The fund shall be used for the purpose of acquiring, by purchase or the exercise of prepayment or purchase options in existing capital leases entered into by the state, capital equipment with an anticipated remaining useful life of not less than five years from the date of purchase and (1) to the extent of not more than two million nine hundred thousand dollars, payment for projects under subsection (a) of section 4-67f, and (2) to the extent of not more than one hundred thousand dollars, payment for awards under subsection (b) of said section.”

Subsection (a) of Section 4-67f provides that OPM shall increase efficiencies through capital investment and energy efficiency measures. State agencies can request funding for capital purchases from the Office of Policy and Management.

Depreciation - Defined as the systematic allocation of the cost of a fixed asset over its estimated service life to the periods that are benefited by the use of the asset. The depreciation of State assets is limited to proprietary and internal service funds. Depreciation is calculated over the realistic useful lives of the assets using the straight-line method on a yearly basis.

The straight-line method is generally preferred for financial statements because it accumulates depreciation evenly over the asset's life. The Comptroller requires depreciation to be calculated on a straight-line basis for Statewide reporting purposes. Also, refer to the section on GASB 34 in this chapter.

Equipment with Component Parts (This section is optional for agencies to use.) Parent/child relationship in Core-CT. A component part is that part of a unit of equipment that cannot be used independently of the remaining piece of equipment or is physically connected to the major asset. This definition applies even though the component part may meet the capitalization criteria by itself.

For example: A CPU box (this term is used for simplification purposes, this “box” actually contains boards for CPU and all ancillary equipment, speakers, etc.) Various boards or cards can be purchased to increase the functions of the CPU such as a network interface card, fax modem card, external tape drive card, etc. This is considered to be one unit consisting of multiple parts - none of which can be used independently.

Therefore, the total cost of the CPU should be capitalized and tagged. The asset description would show a CPU consisting of the box and multiple cards.

Under normal conditions, if one of the cards had to be replaced, it would either be covered under a maintenance contract and no cost would be incurred, but the property control record must be corrected or the replacement piece would be purchased and an appropriate change would be made to the original equipment description.

Periodically, terminals are updated. Trade-in allowances are often part of a new purchase. The old serial number should be deleted on the property control record and the new serial number should be added with any additional cost incurred.

Enhancements to hardware simply increase the cost of the item. Change the property control record to reflect the additional cost.

Certain equipment components may be used with a large number of different equipment items. For example, a telephoto camera lens may be used on any of a number of cameras separately inventoried and tagged by the agency. EDP equipment is another area in which there would be equipment components, such as a printer connected to a mainframe. The key difference here is that these items can operate on many different pieces of equipment, and the equipment to which they are attached can operate independent of the component (e.g. the camera can operate without the telephoto lens and the mainframe can operate without the printer). Therefore, in the truest sense, the item is not a constituent piece of equipment. In these instances, if the item meets the capitalization criteria as an individual item, it should be separately recorded and tagged as an asset.

Due care and diligence should be exercised in determining whether an item is truly a component. If deemed to be a component, it should be included as part of the cost and description of the overall asset. If it is not, it should be recorded as a separate piece of equipment with its own cost and description. The majority of the items will probably fall into the latter category.

Equipment on Loan

General Information - Equipment owned by the State may be removed from its assigned location only with prior written permission from the appropriate agency head. State equipment is not intended to be used for personal reasons. Loan permission is to be granted only in order to conduct State business. The equipment may be loaned if the agency head is convinced that the removal of such equipment will not:

1. interfere with the normal operation of the agency
2. cause unreasonable wear and tear on the equipment
3. cause expense to be incurred by the agency
4. provide for profit-making activities

It is necessary to have control over equipment that leaves State premises. An individual who has been authorized to use State equipment on loan must sign the "Record of Equipment On Loan Form" - CO-1079 or a similar form prepared by the agency.

The individual will be responsible for theft or other cause and/or any damage to the equipment. They will provide due care and security for the equipment until it is returned to the agency. In the event of a theft, the procedures as prescribed in Chapter 9 regarding "Loss or Damage to Real and Personal Property" must be adhered to.

Internal Agency Procedures

The CO-1079 "Record of Equipment Loan Form" or similar agency form must be completed in triplicate. One copy is retained by the division or department loaning the equipment, one copy is to be sent to the Property Control Unit and the final copy should be given to the individual authorized to use the equipment.

Equipment should not leave State premises unless an inventory tag is on the equipment.

The division or department should maintain a logbook to hold the forms. The forms should be numbered consecutively. It is the responsibility of the unit to follow up on equipment out on loan. If the equipment has not been returned by the expected date indicated, procedures should include making direct contact by letter or phone on a weekly basis with the individual until the equipment is returned. Equipment should not be loaned for extended periods of time and all equipment should be returned to the agency during a physical inventory.

Firearms Inventory Control Policy - Each agency must establish written internal procedures regarding firearms that include the agency's property control unit and cover the destruction of firearms. Firearms are to be reported on the agency's inventory regardless of the fair market value or cost; all firearms are considered controllable at a minimum or be reported as a capitalized item. Agencies may explore the feasibility of vendor trade-ins, to upgrade the firearms.

Each agency must ensure that all firearms are properly stored in a secure manner in accordance with Connecticut General Statutes, Section 29-37I - Responsibilities regarding the storage of loaded firearms with respect to minors.

Firearms loaned to another State agency or a municipality must be documented. The Record of Equipment on Loan Form (CO-1079) or facsimile must be completed.

All seized or confiscated items held in storage by the agency pending disposition will be exempt from this inventory control. Seized or confiscated firearms that are subsequently issued (assigned) to agency personnel, or used by the agency, for training purposes, must be added to the agency inventory.

All firearms considered surplus by an agency are to be handled in accordance with the disposal of surplus property procedures.

Government Accounting Standards Board (GASB) Statement No. 34 - The Governmental Accounting Standards Board Statement No. 34, “Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments”, issued in June 1999, defines new financial reporting guidelines.

The effective date of implementation for the State of Connecticut, except for retroactive reporting of infrastructure assets, was the fiscal year ending June 30, 2002. Most state agencies' fixed asset reporting will not be affected by this statement.

The State Department of Transportation will be required to report infrastructure assets within the government-wide statement of net assets. Depreciation on assets will be required, which will be handled centrally by the Office of the State Comptroller and is now included in the Asset Management Module in Core-CT.

Group Control Items (This section is optional for agencies to use.) - Group control items are those assets that have multiple quantities and must be accounted for an asset. Assets may be controlled by group within location if the original unit cost is greater than $1,000. A group control number (one tag number) is assigned for the group but they should be tagged for identification as a State asset. Group items may be tracked by total number of units at a location, and not by individual units.

A detailed example would be modular furniture associated with providing an open office workstation. If fifteen (15) panels plus shelves, rolling files, lighting, etc. were required to create an office area, and the aggregate cost met the capitalization criteria, but the individual cost per item did not, the item(s) would be capitalized. One group control number would be assigned for the entire system (the workstation) with multiple parts.

Leases

Capital Lease - Equipment being purchased under a capital lease should be recorded within the appropriate category at the beginning of the lease term. The initial recording value of a lease is the lesser of the fair market value of the leased property or the present value of the minimum lease payments (excluding interest payments).

The State Accounting Manual, within the Commitments Section, subsection 5, entitled “Installment Purchases, Lease Purchase And Capital Leases”, elaborates criteria for determining if a lease is capital.

Operating Lease - An equipment item that is leased whereby ownership is not transferred to the lessees, in effect no purchase is made, is called an operating lease. Operating leases are not reportable as capital items. If, under the terms of the operating lease agreement, the state agency as lessee were responsible for insuring the property, then the agency should contact the Insurance & Risk Management Board for the coverage.

Maintain sufficient detail to identify property and location including value. However, enter only the total value for which the State is obligated for insurance purposes.

Maintenance - In order to properly perform the property management function, the agency should oversee all costs incurred for the maintenance of its assets. By reviewing and controlling maintenance costs, the agency can demonstrate stewardship over its available resources.

Being able to capture maintenance costs associated with a particular asset is essential in providing management with the information necessary to make allocation of resource decisions such as:

1. Consider replacing a particular asset that has maintenance costs higher than other similar assets.

2. Determine if the agency would be able to reduce maintenance cost by entering into a service contract.

3. Determine if the service contract costs more that a repair-as-needed program would cost for certain assets.

Also, the agency would have available detailed information about each asset regarding maintenance contract dates (inception, expiration, renewal, warranty), maintenance contract number, and maintenance cost. Controlling maintenance contracts and cost is essential in ensuring that the property management function is appropriately addressed.

Property of the US Government - Separate records should be maintained of all property of the United States Government for which the State is held accountable.

The records should be segregated because of the various types of information required for insurance purposes and cost analysis. However, all items under this category will be retained at the agency.

1. On Loan from Federal Agencies - Agencies of the federal government may, as a result of an Act of Congress or by Executive Order, loan certain items to an agency of the State of Connecticut. The obligation of the State agency to the loaning agency of the federal government is spelled out in an agreement and varies with the nature of the materials on loan.

2. Insurance Purposes - In some cases the State must provide insurance in the name of the federal agency and against specified perils. The policy must be forwarded to the particular loaning agency of the federal government and the State must bear the cost.

In other cases the State must insure the federal property against perils that are normally insured by the State within its own program. The federal agency will repay the State for this coverage when billed.

Other federal property requires no specific insurance and the obligation of the controlling State agency may not warrant the purchase of coverage thereon.

If the agency of the State knows the details of the contractual obligation of the State to the agency of the federal government, then a notation should be made in the records as to the manner in which that obligation pertains to insurance.

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