ACCOUNTING FOR PROPERTY ACQUISITIONS - INTERNALLY CONSTRUCTED TANGIBLE ASSETS - 8636

(New: 10/2020)

(New and renumbered from 8454 and 8705)

Tangible capital assets/property are considered internally built if:

• They are created or produced by the agency/department.
• An entity contracted by the agency/department.
• If they are acquired from a third party but require more than minimal incremental effort on the part of the agency/department to begin to achieve their expected level of service capacity.

Examples of tangible assets internally constructed are:

• Buildings
• Parking Garage
• Central Utility Plant
• Lab Equipment
• High-Speed Rail System

Costs incurred in the development and construction of an internally built tangible capital asset are recorded in Construction Work in Progress (CWIP), Account 1608000 (Legacy Account 2350). See SAM section 8610.7 for details of eligible costs.

Costs should be capitalized in the major asset class only upon the completion of the asset in progress. A tangible asset in progress is considered complete when the asset is approved for occupancy or is substantially ready to be placed into service.

Public Works Projects

Labor Code section 1720 defines public works as construction, alteration, demolition, installation, or repair work done under contract and paid for in whole or in part out of public funds.

Responsibilities for Accurate Reporting

Communication is critical for the accurate reporting of capital assets in progress. Agency/Department Facilities/Business Services and Accounting Units, the Department of Finance (Finance), the Department of General Services (DGS), and the State Controller’s Office (SCO) all perform key roles in the capital outlay process. For more information on the detailed capital outlay budgeting and financing process, see SAM sections 6801-6899, Budgeting.

1. Agency/Department Facilities/Business Services Unit
   • Work with the Accounting Unit to establish a joint Memorandum Of Understanding, which will provide a forum for collaboration, interaction, and communication between the parties involved in the construction process. Develop internal policies and procedures to ensure the Accounting Unit is informed of the important forms, reports, and events as they occur.
   • Ensure that documents and reports of project costs and activities are tracked and shared with the Accounting Unit so that encumbrances and project costs are accurately recorded.
   • Communicate with the Accounting Unit when the project has reached occupancy or completion, whichever is first. Ensure documentation for project occupancy or completion is submitted to the Accounting Unit.
2. Agency/Department Accounting Unit
   • Work with the Facilities/Business Services Unit to establish a joint Memorandum Of Understanding, which will provide a forum for collaboration, interaction, and communication between the parties involved in the construction process. Develop internal policies and procedures to ensure the Facilities/Business Services Unit is queried for any important forms, reports, or events until the project is complete.
   • Ensure that the Facilities/Business Services Unit is aware of the forms, reports, and events that will trigger accounting transactions and reporting.
   • Record project funding agreements as an encumbrance in the accounting system. Record all project costs and funding transfers as expenditures incurred during the period and accumulate associated CWIP in the asset accounts.
   • Communicate to the Facilities/Business Services Unit when CWIP has been recorded and provide source documentation used to record the costs.
   • The Facilities/Business Services Unit will notify the Accounting Unit when a project reaches occupancy (Certificate of Occupancy) or completion (Notice of Completion), whichever is earliest. A review of all project costs should be reconciled to the CWIP account prior to reclassifying CWIP to a capital asset classification.
   • Report real property to the Statewide Property Inventory (SPI) system and reconcile SPI records to the accounting records for real property assets.
   • Real property includes land, buildings (structures), building improvements, and land improvements; whether owned or leased.
   • Certify that on July 1 annually, the agency/department has accurately and completely reported and updated all real property information in the SPI for the prior calendar year.
   • SPI records shall reflect the details and dollar amounts found in the agency/department property register for real property.
   • Do not report CWIP to SPI.
   • Ensure that year-end financial statements reflect all capital assets and CWIP costs.
3. Department of Finance
   • Reviews agency’s/department’s requests for capital outlay project funding through Capital Outlay Budget Change Proposals.
   • Reviews legislation proposing capital outlay projects and capital lease projects.
   • Works with the State Public Works Board and the State Treasurer’s Office to provide interim and long-term financing for projects.
   • State Public Works Board acquires property for the state and approves preliminary plans and reviews performance criteria of capital outlay projects.
4. Department of General Services
   • The Real Estate Services Division (RESD) acts as the project manager for large capital outlay projects for the state. SAM section 6805 identifies eight departments whose purview is outside of RESD.
   • RESD is hired by the agency/department to manage the capital outlay project. RESD is accountable to the agency/department to provide pertinent information needed to record and report all project costs.
   • The DGS will provide access to CWIP reports for agencies/departments to record ongoing project costs.
   • The Asset Management Branch (AMB) administers a centralized inventory system that is the repository for all real property information in the state, whether owned or leased.
   • The AMB may provide an annual inventory subsidiary report of real property recorded in the SPI to the SCO for the preparation of the Comprehensive Annual Financial Report (CAFR).

    

5. State Controller’s Office
   • May compare the real property activity and balances reported in the agency’s/department’s Reports 18 and 19 to prior year information.
   • May communicate discrepancies between the two reports to the agency/department and provide a due date for submitting corrected reports.
   • May use the SPI and the agency’s/department’s Reports 18 and 19 to support the real property balances reported in the CAFR.

Architecture Revolving Fund Transfers

An agency/department can submit a Fund Transfer Request Form to the DGS in one of two ways:

a.   Customer Requests: Upgraded Information Sharing Environment (CRUISE) Request – new projects only; this online form can be found in DGS Global CRUISE system as a required document when the request is for an Architecture Revolving Fund funded project.

b.   Directly to the assigned DGS Project Manager overseeing the project – existing projects already in progress.

Upon receipt, the assigned DGS Project Manager reviews the request to ensure all required information has been populated and routes the request to a DGS analyst for processing. The assigned DGS analyst generates the funding agreement and routes it within the DGS for signatures. The DGS routes the original copy to the agency/department for review/approval along with a routing slip. The agency/department signs and routes to Finance for review/signature. Finance signs the original, routes the approved copy to the SCO for processing, and will send an electronic copy of the funding agreement to the recipients on the routing slip. The SCO will issue a journal entry to notify the agency/department and the DGS of completion. The DGS will then key the fund transfer to the Architecture Revolving Fund project shown on the journal entry. The RESD will initiate a Standard Agreement, STD. 213 for projects whose scope will require more than one DGS-RESD Form 22 to transfer funds as needed.

Capital Assets Constructed Using Lease Revenue Bonds

The State Public Works Board (SPWB), as the lessor, will record project costs that use resources of lease revenue bonds as CWIP until an authority has issued a Certificate of Occupancy or insurance is in place, and lease payments begin. Upon lease inception, SPWB will notify the lessee agency/department in writing of the CWIP amount being transferred from SPWB books to the agency/department books.

The lessee agency/department will record project costs from all resources as CWIP. The lessee agency/department should accumulate the total CWIP costs, including those transferred from SPWB, and record the capital asset in the fund that will pay the lease payments. The lessee agency/department will record project costs incurred after lease inception as CWIP. When the additional project costs are complete, the agency/department will reclassify CWIP to the appropriate major asset class.