COVID-19, campus shutdowns, shrinking budgets, and F&A rate extensions require that administrators consider the investment in research and impact on future years’ F&A rates. More than ever before colleges and universities are planning for the next rate proposal and examine techniques to identify and optimize cost allocation to benefitting activities. For example, many institutions took advantage of the opportunity to defer F&A proposals based on FY20 until FY21. In this four-part blog series, we examine the considerations of four important initiatives including: a diagnostic review to improve costing processes via a dry run exercise; the benefits of proper utility metering; updating capital asset depreciation expense; and the evolution of the library infrastructure.
Part 3: Fixed Asset Depreciation Reporting Exigency
How is your institution keeping pace so that it is prepared for quarterly and annual financial reporting and the upcoming FY21 or FY22 base year F&A proposal? Fixed asset accounting is a comprehensive process to account for cost expenditures to purchase capital assets, ranging from land and buildings to various types of equipment. While most of the process is routine, we all have adapted with our teams working remotely during this pandemic. However, specific steps to meet federal reporting requirements common to research and healthcare have been interrupted since March.
While certain institutions only fell three months behind, other research institutions will not have their staff back on campus until January 2021, putting them 9 months behind. The information gathered during the inventory, tagging, and reconciliation process feeds management reports, financial reports, and ultimately is required to meet Federal A-133 audit requirements. These required steps include affixing barcode tags to equipment and recording their room location so that management can rely on this information to properly assign depreciation expense to buildings, departments, principal investigators, and projects.
Beyond the regulatory requirements, the institution should consider building construction cost componentization in order to enhance depreciation related to new construction and renovation projects by identifying building, building services, and fixed equipment rather than capitalizing all project costs to one “standard” life. OMB Uniform Guidance indicates that research building components be depreciated on a building-by-building basis, understanding that institutional use varies based on the functional use and type of research activities and the useful lives should be reviewed on a periodic basis.
We suggest beginning equipment inventory and building componentization studies early in the base year to accommodate a potentially longer timeline during the pandemic and the successful integration of the results into the accounting system and F&A proposal planning process.
About the Author
Andrew Campbell is a Senior Manager at Attain Partners. He has over 30 years of experience advising clients in fixed asset management and depreciation reporting, building componentization studies, useful life studies, equipment inventory and reconciliation, and asset valuation services.