BUSINESS SERVICES GUIDE Superintendent of Schools San Diego County INVENTORY

BUSINESS SERVICES GUIDE 2008 Superintendent of Schools, San Diego County INVENTORY Page 1 BASIS FOR OPERATION The district is responsible for maintaining an accounting system for recording acquisitions, identifying how and where property is used, and noting its condition and disposition when it is no longer useful. This documentation is also valuable for evaluating the potential serviceability and longevity of future purchases. An important function of the governing board is to delegate responsibility for the tracking and care of district property. Definite assignments and levels of responsibility for property are basic to an adequate property accounting system. The district administrative staff is assigned responsibility for district property by the governing board. Site administrators or designated staff members of the school are generally given the responsibility for property in use at the facility supervised. Boards may extend responsibility to the classroom teacher for equipment under the teacher's direct control. Procedure 410 of the California School Accounting Manual outlines procedures for conducting a physical inventory of property and equipment (see Additional Resources). For good internal control, an inventory should be taken at least annually. Allowances must be made for overages and shortages of school property as revealed by the inventory. The California School Accounting Manual, Procedure 330, defines the following areas for which school districts are required to record capital outlay expenditures: equipment, equipment replacement, books and media for new school libraries or major expansion of school libraries, buildings and improvement of buildings, land, and land improvements. These six classifications and related topics are discussed in this section. The recommendations set forth for permanent property records are minimum standards that meet legal requirements and comply with good property accounting practices. LEGAL PROVISIONS The governing board of each school district, shall establish and maintain a historical inventory, or an audit trace inventory system, or any other inventory system authorized by the State Board of Education, which shall contain the description, name, identification, and original cost of all items of equipment acquired by it whose current market value exceeds five hundred dollars ($500) per item, the date of acquisition, the location of use, and the time and mode of disposal. [EC § 35168] School districts are required to permanently retain all detail records relating to land, buildings, and equipment. In lieu of such detail records, the district may permanently retain a complete property ledger that must include: [5 CCR §§ 16023(d), 59023(e)] BUSINESS SERVICES GUIDE 2008 Superintendent of Schools, San Diego County INVENTORY Page 2 1. 2. 3. All fixed assets. An equipment inventory. Information for each unit of property, including the following: the date of acquisition or augmentation; the person from whom acquired; an adequate description or identification; the amount paid; and comparable data if the unit is disposed of by sale, loss, or other means. The property control system of every school district should be maintained in accordance with the following: 1. The title to all real property is held in the name of the district. [EC §§ 17385, 81300] There must be no adverse deed restrictions on the property. [EC §§ 17386, 81301] The sale and lease of real property must comply with legal provisions. [EC §§ 17455, 81360] The sale and lease of personal property must comply with legal provisions. [EC §§ 17542, 17545, 81450] All deeds, insurance policies, and ownership certificates should be systematically filed in a safe place. All district equipment should be identified by a label or mark. Materials and equipment purchased for blind pupils for whom state or federal funds were allowed must be accounted for as state property. These items are available for assignment elsewhere in the state. An annual physical inventory must be taken. Property records should be reconciled with expenditures from various funds. 2. 3. 4. 5. 6. 7. 8. 9. 10. Instances of missing equipment, vandalism, or break-ins must be reported and investigated promptly. BUSINESS SERVICES GUIDE 2008 Superintendent of Schools, San Diego County INVENTORY Page 3 RULES AND REGULATIONS It is essential that the board establish regulations governing the means by which responsibilities for district property will be assigned. Areas to be covered include: 1. The use of grounds and facilities by the public and agencies other than the school district under the Civic Center Act. [EC §§ 38130 et seq., 82537, 82542 et seq.] 2. The establishment of accounts on a school or other basis. 3. Procedures for transferring property from school to school or within a school. 4. Penalties for the misuse of school property. 5. Physical inventory of the district’s property and equipment that appear in the district’s records. Capital Assets Capital assets consist of property and equipment of material value. These include land and land improvements, buildings and building improvements, equipment, and all other tangible assets that have an initial useful life extending beyond a single financial reporting period. Procedure 430 of the California School Accounting Manual provides recommendations for recordkeeping for capital assets, in addition to the inventory requirements of Education Code section 35168, that are necessary to comply with generally accepted accounting principals and the requirements of federal funding agencies (see Additional Resources). Annual Report A summary of the district's fixed assets should be prepared annually for the governing board. The report should show a breakdown of the fixed assets, sites, improvement of sites, buildings, and equipment as of June 30 of the prior year. The breakdown should show all additions and deletions made during the fiscal year. EQUIPMENT AND EQUIPMENT REPLACEMENT Equipment is movable personal property that has both an estimated useful life over one year and an acquisition cost equal to or greater than the capitalization threshold established by the district. Examples are computers, office furniture, vehicles, and machinery. The district must properly identify and maintain complete inventory records for all equipment. BUSINESS SERVICES GUIDE 2008 Superintendent of Schools, San Diego County INVENTORY Page 4 Procedures 330 and 770 of the California School Accounting Manual provide definitions and clarification necessary for identifying equipment and distinguishing between equipment and supplies, improvement of grounds, and building fixtures or service systems (see Additional Resources). Expenditures for capitalized equipment are charged to object classification 6400, and expenditures for non-capitalized equipment are charged to 4400 (see discussion of “capitalization threshold” below). Expenditures for piece-by-piece replacement of equipment either as a direct purchase or lease purchase should be recorded in object classification 6500. Nomenclature List Developing a nomenclature list is the first step in establishing permanent property records for equipment. It is recommended that districts using computerized inventory systems to maintain records adopt a list using a multi-digit property class that would be compatible with such a system. Equipment with a current market value of over $500 must be included in the inventory. While the governing board may establish a lower limit for inventory purposes, $100 is the lowest limit recommended. The worth of inventory records for items without significant value does not justify the effort and expense involved in maintaining such records. Equipment should be identified and property records established at the time of acquisition by the district. All equipment should be physically inventoried annually thereafter to properly maintain these records. Each school site should maintain a copy of its inventory and should provide a copy to the district office. The inventory should meet at least the following requirements (see Exhibit 1): 1. The item description should be recorded in the nomenclature list. 2. Each piece of equipment should be numbered sequentially with a district identification number using decals, fiber tags, or other means of permanent marking. Inventory tags should be placed in a standard location on each item to facilitate the physical inventory. 3. If the manufacturer has numbered a piece of equipment, the manufacturer's identification number should be recorded. BUSINESS SERVICES GUIDE 2008 Superintendent of Schools, San Diego County INVENTORY Page 5 4. The actual cost and current market value must be included for all items currently valued at $500 and above. Actual cost should include invoice cost paid by the district plus any sales tax, shipping and handling, and installation. A reasonable cost estimate may be used if the actual cost is unknown. The governing board should approve the fair market value of donated items as of the date of acquisition. (See Procedure 430, California School Accounting Manual.) 5. The date of acquisition and the estimated date and mode of disposal must be recorded. 6. The current location of use should be noted. 7. Every item of equipment should be assigned to the custody of a designated individual. The equipment records required by law may be expanded to include information such as maintenance requirements and replacement schedules. [EC § 35168; 5 CCR §§ 16023(d), 59023(e)] If an item of equipment was purchased with discounts from the Schools and Libraries Universal Service Support Mechanism (E-rate program), this information should be included in inventory records along with other recommended data. For E-rate equipment purchased and components of supported internal connections services, districts must retain asset and inventory records sufficient to verify the location of the equipment for a minimum of five years after purchase. To prevent audit issues, records should include the make, model, serial number, physical location, delivery and/or installation date(s), funding request letter (FRN), customer bill reference number(s), pre-discount cost, non-discount portion, and reference number (e.g., check number) of the payment of the non-discount portion (see Additional Resources). Capitalization Threshold The capitalization threshold is the per-unit cost at which a given item qualifies for capitalization. For most districts, a policy establishing a capitalization threshold of at least $5,000 is recommended. For larger districts, a higher capitalization threshold may be appropriate. If a district elects to set a threshold higher than $5,000, a separate threshold of $5,000 will also be necessary for items paid for with federal funds (California School Accounting Manual, Procedure 770). In accordance with the reporting model established by the Governmental Accounting Standards Board (GASB) Statement No. 34, capital (fixed) assets are reported in the government-wide statement of net assets, and a schedule of capital assets is included in the notes to the financial statements. BUSINESS SERVICES GUIDE 2008 Superintendent of Schools, San Diego County INVENTORY Page 6 “Equipment” includes all expenditures made for capitalized equipment in object classification 6400. Expenditures for capitalized equipment, land improvements, building fixtures, and service systems are those that result in the acquisition of capital assets or additions to capital assets. “Non-capitalized equipment” includes individual items with an acquisition cost less than the capitalization threshold, generally items between $500 and $5,000. Object classification 4400 must be used to record equipment costs within this range. In general, expenditures for items in this range will be subject to indirect cost calculations for the purposes of state and federal categorical programs. However, districts must determine from individual program guidelines whether equipment in object classification 4400 should be included when calculating indirect costs. Capital Outlay Disposition Request Form An effective inventory system requires that records be maintained related to the disposition of school property and equipment. A form such as the Capital Outlay Disposition Request provided as Exhibit 2 should be completed whenever there is a change in the disposition of school property or equipment. Such a form provides a record of the following: 1. Interdepartmental or interdistrict transfer: verification of the property identity, the transaction date, and the location and signatures of the releasing and receiving agents. 2. Loss or theft: analysis of the known circumstances when an equipment item is lost or stolen, along with certification that the designated administrative officer has reviewed the loss. This precedes approval by the governing board to remove the item from inventory. 3. Retirement: verification of the identity of property that has reached the end of its usefulness and the specific reason for its retirement, along with certification that a designated employee has approved the retirement. The procedure for disposal of personal property for the purpose of replacement should be followed, and the time and mode of disposal should be recorded. 4. Removal due to low valuation: certification by a designated employee that the value of the property or equipment has fallen below $500 and the item should be reviewed for removal from inventory records, even if the item is still in use. BUSINESS SERVICES GUIDE 2008 Superintendent of Schools, San Diego County INVENTORY Page 7 BOOKS AND MEDIA Expenditures for library books and materials to stock a new school library or for material expansion of a library are recorded in object 6300, Books and Media for New School Libraries or Major Expansion of School Libraries. Procedure 330 of the California School Accounting Manual distinguishes between these expenditures and the routine purchase of library books and reference materials for use by district personnel, object classification 4200. A complete and accurate inventory of books and media recorded in object 6300 should be established and verified annually. DISPOSAL OF PERSONAL PROPERTY The governing board may sell at cost, without advertisement for or receipt of bids, any personal property or school supplies to the federal government or any agency eligible under the federal surplus property law. [EC §17540] (See also Accounting.) The governing board may sell for cash any personal property of the district that is not required for school purposes, or if it should be disposed of for replacement, or if it is unsatisfactory or not suitable for school use. [EC §§ 17545(a), 81450(a)] If the value of property, which may consist of one or more items, does not exceed $2,500, as determined by unanimous vote of the governing board members present, it may be sold by any authorized employee at a private sale without advertising. If the property is of insufficient value to defray the costs of arranging a sale, it may be donated to a charitable organization deemed appropriate by the board, or it may be disposed of in the local public dump on order of an authorized employee. [EC §§ 17546, 81450, 81452] If the value of the property is determined to be in excess of $2,500, there shall be no sale until notice has been given by posting in three public places within the district for at least two weeks or by publishing in a local newspaper having general circulation at least once a week for two weeks. The board shall sell the property to the highest responsible bidder or shall reject all bids. Any item previously offered for sale, but for which no qualified bid has been received, may be sold by an authorized employee at private sale without advertising. [EC §§ 17545(b), 17546(b), 81450(a), 81452(b)] The governing board may choose to conduct any sale of personal property by means of a public auction conducted by district employees, other public agencies, or by contract with a private auction firm. The board may delegate to the employee responsible for conducting the auction the authority to transfer the personal property to the highest responsible bidder upon completion of the auction and after payment has been received. [EC §§ 17545(a), 81450(b)] BUSINESS SERVICES GUIDE 2008 Superintendent of Schools, San Diego County INVENTORY Page 8 A school district may sell or lease surplus Internet appliances or computers to parents of pupils in the district, at a price not to exceed the original cost to the district, for the purpose of providing access to the district’s educational computer network. [EC § 17453.1] Equipment purchased with discounts from the E-rate program shall not be sold or transferred in consideration of money or anything else of value for a three-year period after purchase. An exception is made in the event that the particular location where the equipment was originally received is permanently or temporarily closed. Three or more years after purchase, districts may freely transfer equipment to other eligible entities but only without payment of money or anything else of value. [47 CFR § 54.513] Both the transferring and receiving entities must notify the Schools and Libraries Division (SLD) of the Universal Service Administrative Company (USAC) of the transfer. Districts shall maintain records documenting the transfer for a period of five years. Instructions for notifying the SLD are available on the USAC Web site (see Additional Resources). The county superintendent of schools may dispose of personal property worth over $25,000 with county board approval after obtaining an independent valuation of the property, advertising the property for sale in a newspaper of general circulation, and presenting the matter to the county board of education for its discussion and approval. In order to dispose of any personal property worth less than $25,000, the county superintendent of schools must certify its value in a quarterly report to the county board of education. [EC § 1279] LAND AND LAND IMPROVEMENTS Land The costs associated with acquisitions of land and additions to old sites and adjacent ways must be recorded under object classification 6100, as described in Procedure 330 of the California School Accounting Manual (see Additional Resources). A sample site record is presented as Exhibit 3. The following information should be recorded for each parcel of land owned by the district: 1. Site Identification a. Location b. Use of site c. Legal description BUSINESS SERVICES GUIDE 2008 Superintendent of Schools, San Diego County INVENTORY Page 9 d. Size e. Disposition 2. Acquisition of Site a. Date b. Deed reference c. Method of acquisition d. Previous owner e. Summary of deed restrictions (supported by title insurance policy) f. Source of funds 3. Cost Data a. Purchase cost of land acquisitions and improvements b. Cost of additions to and improvement of old sites and adjacent ways c. Demolition costs for removal of old buildings on newly acquired sites d. Incidental expenditures related to the site acquisition, e.g., appraisal fees, search and title insurance, surveys, and condemnation proceedings and fees Procedure 430 of the California School Accounting Manual presents guidelines for determining the method of valuation for inventory purposes. Generally accepted accounting principles require the use of actual historical cost to determine the value of property. An appraised acquisition cost, a reasonable estimate of acquisition cost, or a valuation based on fair market value may be assigned to property when acquisition costs are not available or the land has been donated, exchanged, or sold at a reduced price to the district. In addition to compiling the recommended site data, it is important to ensure that the deed has been properly recorded. A title policy must be received and should be stored in a safe place. This data may be recorded on a prepared form that presents a permanent and cumulative record of each site. Additionally, a record of additions or sales from existing sites can be maintained (see Exhibit 3). BUSINESS SERVICES GUIDE 2008 Superintendent of Schools, San Diego County INVENTORY Page 10 Land Improvements Land improvements include work such as grading, landscaping, sewers, and athletic fields. Improvements must be recorded and counted as part of the total fixed assets of the district. The costs of site improvements should be taken from invoices or contracts covering the work completed. Land improvements of new and old sites and adjacent ways as described in California School Accounting Manual Procedure 330 are charged against object classification 6170. Records relating to the costs and details of improvements should be maintained in such a manner that they agree with corresponding site records (see Exhibit 3). BUILDINGS AND IMPROVEMENT OF BUILDINGS Included in building costs are expenditures for construction or purchase of new buildings (including relocatable buildings) and additions, replacements of obsolete buildings, and any other construction or acquisition costs that are directly related to the original building purchase or alterations at a later date. Also included are costs of improvements of buildings such as alterations, remodeling, renovations, and replacement of buildings in whole or in part that meet the district’s capitalization threshold. Procedures 330 and 770 of the California School Accounting Manual provide definitions and criteria to be used for identifying expenditures in object classification 6200, Buildings and Improvements of Buildings (see Additional Resources): 1. Building fixtures and service systems that meet the following criteria: the item is permanently attached to the building; the item functions as part of the building; the building would be damaged or not serve its intended use if the item were removed; the item is real property; and the item loses its functional identity as a separate unit. Building fixtures and service systems generally have long and useful lives. a. Fixtures are permanent attachments to a building. Examples are cabinets and bleachers installed in a gymnasium. b. Service systems serve a single function throughout a building and are usually installed during construction. Examples are heating, air-conditioning, and ventilation systems; plumbing; and communication systems. 2. A building addition, defined as a physical extension of an existing structure. BUSINESS SERVICES GUIDE 2008 Superintendent of Schools, San Diego County INVENTORY Page 11 3. A betterment, defined as a replacement of part of an existing asset that increases the life or value of the asset. 4. Other costs associated with the construction or purchase of buildings, such as architectural and engineering fees, blueprints, demolition costs, and inspection fees. In addition to reflecting costs, records for buildings should provide a convenient and accessible reference for any information pertinent to the building. Exhibit 4 presents a sample building record form. Photographs of buildings and a drawing showing the location of the buildings on the site and the dimensions and use of each room should be included. Alterations, additions, or improvements to the original building should be noted, as well as the following information: 1. Building Identification a. Name of building b. Location c. Use of building d. Acquisition date e. Date of construction contract f. Contractor g. Date of acceptance h. Type of construction i. Source of funding 2. Size and Dimensions a. Pupil and occupancy capacity b. Number of rooms 3. Service systems a. Heating, air conditioning, ventilation BUSINESS SERVICES GUIDE 2008 Superintendent of Schools, San Diego County INVENTORY Page 12 b. Water supply and sewage disposal c. Electrical d. Communication e. Fire protection f. Elevators Estimated Current Replacement Cost In addition to recording original and all subsequent building costs, an estimated replacement value should be set on each building and updated at least every five years. Rising construction costs, alterations, additions, and replacements of built-in fixtures alter the actual value of a building. The estimated current replacement cost is essential for insurance purposes. To establish the estimated replacement costs, districts should refer to State Allocation Board (SAB) regulations, Title 2, California Code of Regulations section 1859.82. (see Additional Resources). Base schedule amounts calculated from commercial construction cost resources are subject to adjustment by a construction cost index factor, an urban area factor, small building area factors, and building type (i.e., Class B or Class D construction), if applicable. Construction cost indices are available on the Office of Public School Construction (OPSC) Web site (see Additional Resources). SALE OR LEASE OF REAL PROPERTY The governing board may sell or lease for a term not exceeding 99 years any real property belonging to the district that is not or will not be needed by the district. Restrictions and conditions applicable to the sale or lease of real property are defined in the Education Code. [EC § 17455 et seq.] (See also Accounting and Facilities Planning.) Records relating to the sale or lease of real property should be maintained in such a manner that they agree with corresponding site records (see Exhibit 3). ADDITIONAL RESOURCES 1. California School Accounting Manual, California Department of Education, 2008. Available: BUSINESS SERVICES GUIDE 2008 Superintendent of Schools, San Diego County INVENTORY Page 13 2. California Code of Regulations. Available: Title 2, California Code of Regulations, section 1859.82. Available: 3. K-12 High Speed Network for E-rate program information and news. Available: Office of Public School Construction, Department of General Services, for construction cost indices and links to other resources. Available: State Allocation Board Regulations. Available: Universal Service Administrative Company, Schools and Libraries Division: E-rate program information. Available: Transfers of equipment purchased with E-rate discounts. Available: Understanding Beneficiary Audits. Available: LIST OF EXHIBITS 4. 5. 6. Exhibit 1 Capital Property Inventory Record Form, Sample, San Diego County Office of Education (SDCOE) Capital Outlay Disposition Request Form, Sample, SDCOE Site Record Form, Sample, SDCOE Building Record Form, Sample, SDCOE Exhibit 2 Exhibit 3 Exhibit 4 EXHIBIT 1 Page 1 of 2 Revised April 2006 Capital Property Inventory Record Location of Equipment Purchase Order Number E-tag Number Equipment Description Acquisition Data Code Date Cost D-S-Ss S-B-R Educational Technology 36807 E 24654 MAC G4 005 04/30/03 $2,598.00 005-200-001 043-207-001 Class Location Data 135 Serial Number If the Location listed above is not correct, please enter the correct location here. ---> Tagged by: Please fill in the Serial Number, tag the equipment, sign the form and return it to Room 503 Form 108-Internal Business SDCOE 10/02 EXHIBIT 1 Page 2 of 2 Revised April 2006 Guidelines for Form 108 – Internal Business Capital Property Inventory Record 1. The purchasing unit will send the receiving copy of the purchase order for capital outlay equipment to the inventory clerk. 2. A Capital Property Inventory Record (Form 108) will be completed by the inventory clerk, who will enter the following data: a. Assigned E-tag number b. Description of equipment c. Property class and insurable value d. Acquisition cost and purchase order number e. Location and accounting data f. Description of where equipment will be located 3. The receiving copy of the purchase order, property tag(s), and the Form 108 will be forwarded to the receiving section 4. Upon receipt of the equipment, the receiving clerk will tag the equipment, enter the manufacturer’s serial number (if appropriate), sign and date Form 108. 5. Form 108 will be returned to the inventory clerk, and the receiving copy of the purchase order will be sent to the Accounts Payable unit by the receiving clerk.