Table of Contents
This document provides the Department of the Interior's (DOI) real property accounting policies and procedures developed in accordance with Federal Management Regulations (FMR) and Statements of Federal Financial Accounting Standards (SFFAS). These policies are provided to ensure effective financial control over DOI owned and leased real property.The financial policy cited in this document is intended to provide reasonable assurance that the objectives of the Department are being achieved in the following categories:
< >Effectiveness and efficiency of operations, including the use and disposition of the Department's resources.
Reliability of financial reporting, including reports on budget execution, financial statements, and other reports for internal and external use.
Accountability and control over all Departmental real property.
Compliance with applicable laws and regulations.
This policy is based on and supports the requirements of SFFAS Number 3, "Accounting for Inventory and Related Property," SFFAS Number 6, "Accounting for Property, Plant and Equipment" (as amended by SFFAS Numbers 11 and 16), and SFFAS Number 8, "Supplementary Stewardship Accounting" (as amended by SFFAS Numbers 11 and 16)." The SFFAS standards can be found at: www.fasab.gov
Assistant Secretaries, Bureau Directors, bureau financial officials, property officers and program managers all have a role in ensuring that real property is properly managed and reported, and that real property and financial records are reconciled. The roles and responsibilities below can only be accomplished with close cooperation among all parties. Specific responsibilities of financial and real property managers are listed below. The list focuses on financial-related responsibilities and does not include all responsibilities, e.g., safeguarding assets.
This policy is effective upon issuance with the exception of capitalization thresholds and useful lives of currently held property.
Early implementation of this policy may be requested by bureaus/offices by following procedures outlined in the Policy section below.
Real property owned or leased by the DOI must be properly accounted for in real property accountability records. Any changes to real property owned or leased by DOI must be tracked and reflected in real property accountability records. Each real property acquisition, improvement, construction, donation, transfer or upgrade that meets the overall capitalization criteria will be recognized in the financial records and depreciated.
Exceptions to this policy may be granted only by the Director, Office of Acquisition and Property Management (PAM). Consideration of exceptions will be made by the Director, PAM and the Director, Office of Financial Management. Requests for exceptions to this policy must be justified and submitted, in writing, by the Bureau Director to the Director, PAM, with an analysis of the impact of the requested exception on the financial statement.
Real property is defined as any interest in land, together with structures and fixtures, appurtenances, and improvements of any kind located thereon. The term "real" should be associated with realty, land, or something attached thereto.
The cost of acquiring, improving, reconstructing, or renovating heritage assets, other than multi-use heritage assets, shall be recognized on the statement of net cost for the period in which the cost is incurred. The cost shall include all costs incurred during the period to bring the item to its current condition at its initial location.
No amounts for heritage assets acquired through donation or devise (a will or clause or a will disposing of property) shall be recognized in the cost of heritage assets. The assets' fair value, if known and material, shall be disclosed in notes to the financial statements in the year received. If fair value is not known or reasonably estimable, information related to the type and quantity of heritage assets received shall be disclosed.
Capitalization is defined as recording the total acquisition cost of an item in the general ledger of Interior's financial accounts. The intent of capitalization in the financial records is to provide an accurate and total reflection of Interior's investment in real property over time and to provide information on operating performance by allocating costs to the periods benefited.
Capitalization in the financial records is not to be confused with accountability. Accountability is maintaining records of and control over assets determined to be important because of their use, value or significance in meeting Interior's mission and fiduciary responsibilities. Capitalization and accountability of assets will overlap, but should not be considered synonymous.
When determining whether any specific real property item will be capitalized, the following criteria must be considered:
< >Any asset designated as stewardship or heritage is not capitalized.
Any asset that has an estimated useful life of less than two years is not capitalized.
Any asset that has an acquisition cost below the established capitalization threshold is not capitalized.
Must not be intended for sale in the ordinary course of operations; and
Bureaus and offices may choose to implement more stringent thresholds. Consideration of exceptions will be made by the Director, PAM and the Director, Office of Financial Management. Requests for exceptions to this policy must be justified and submitted, in writing, by the Bureau Director to the Director, PAM, with an analysis of the impact of the requested exemption on the financial statement. The Bureau Director must receive approval before implementing a threshold different from the Department's.
The application of the general capitalization criteria to specific situations is addressed below.
At times there is a fine line between repair and maintenance, which are expensed, and capital improvements, which are capitalized. In general, capitalized improvements increase useful life or functionality of the underlying asset.
To establish whether an asset or capital improvement is capitalized, the dollar values for modifications are not added to the value of the original asset. The asset acquisition and the capital improvement are treated as separate transactions and the capitalization criteria are applied separately to each transaction. If a single subsequent modification meets the capitalization criteria, that modification will be capitalized at its acquisition cost.
The date the transferor originally acquired the real property should be obtained for calculation of depreciation. If the original date of acquisition cannot be obtained, it shall be estimated in coordination with appropriate technical and property officials.
The property may be purchased at a bargain price at the end of the lease term.
The lease term is greater than 75% of the estimated economic useful life of the property.
The present value of the minimum lease payments is greater than 90% of the fair market value.
Collateral Equipment. Collateral equipment includes building-type equipment, built-in equipment, and large substantially affixed equipment, normally installed as a part of a facility project, whether it is an original facility construction or modification. Collateral equipment is considered part of the facility project in which it is installed and shall be included in the value of the project in making the determination as to whether the project meets the capitalization criteria. The cost of replacements of or additions to the collateral equipment in an existing facility will be treated as either a capital improvement or maintenance, in accordance with the Capital Improvements section of this document.
Procedures shall ensure that the costs of facilities projects are capitalized in accordance with capitalization criteria and the related amounts removed from work in progress when deemed substantially complete. A review of the physical completion status of individual facilities projects shall be conducted with cognizant real property officials sufficiently in advance of the end of the fiscal year so that necessary entries can be made to properly reflect their status as of the fiscal year end. This review should be completed regularly throughout the year to meet the Department's three day close period.
Trails are considered to be improvements to stewardship land. In addition, some trails are in themselves heritage assets. Trails earthen in nature and costs of constructing and maintaining trails are expensed unless they are part of the General PP&E.
1711 Land and Land Rights
1712 Improvements to Land
1719 Accumulated Depreciation - Land Improvements
BUILDING, OTHER STRUCTURES AND FACILITIES
1730 Buildings, Improvements & Renovations
1739 Accumulated Depreciation-Buildings & Improvements
1740 Other Structures & Facilities
1749 Accumulated Depreciation - Other Structures
CONSTRUCTION IN PROGRESS (CIP)
1720 Construction in Progress
172B CIP In Abeyance
172C CIP Completed but Not in Service
199B Investigations and Development
Capital Lease Liability Accounts
2940 Capital Lease Liability
690D Non Prod Costs - Inv in NonFed Phys Prop
690E Non Prod Costs - Inv in Stew Assets
690F Non Prod Costs - Inv in Heritage Assets
Each real property acquisition, addition, improvement, alteration, rehabilitation or replacement will be treated as a single event. The total cost of each single event should be used to determine whether it meets the capitalization criteria, regardless of when payment is made. If the event meets the criteria for capitalization, all costs incurred in relation to that event, regardless of when they are paid, will be recorded in general ledger accounts. The total cost of a project, e.g., a building, will be considered a single event regardless of whether the work was performed on multiple contracts.
Detailed property records maintained by Real Property Officers should support the financial data maintained in the accounting records.
Capitalized values of assets purchased or constructed by Interior shall include all costs paid for the property, the value of other assets surrendered to obtain the property and all other costs incurred to bring real property to a form and location suitable for its intended use, i.e., the total cost to Interior. These costs include but are not limited to:
< >amounts paid to vendors or contractors, including fees;
transportation charges to the point of initial use;
handling and storage charges;
labor and other direct or indirect production costs (for assets produced or constructed);
engineering, architectural, and other outside services for designs, plans, specifications, and surveys;
acquisition and preparation costs of buildings and other facilities;
an appropriate share of the cost of the equipment and facilities used in construction work, including depreciation;
fixed equipment and related costs of installation required for activities in a building or facility;
direct costs of inspection, supervision, and administration of construction contracts and construction work;
legal and recording fees and damage claims; and
material amounts of interest costs.
Finance charges, including interest;
Ancillary costs such as delivery and installation charges; and
Capitalized property, including buildings, structures and facilities, is depreciated over time in order to allocate the costs of assets to the activities and time periods expected to benefit from the use of the property. Depreciation is an important component of the full cost of activities for financial and performance reporting. In addition, management is expected to consider depreciation along with other cost elements when establishing reimbursable agreements and repayment contracts.
Depreciation is computed using the straight-line method or other acceptable method approved by the Director, PAM. Depreciation is calculated and accounted for by recognizing an entry to depreciation expense and accumulated depreciation.
Land, land rights and permanent improvements to land such as roadbeds do not lose value over time and are not subject to depreciation. No depreciation is recognized for these assets.
Depreciation of an asset is calculated considering the estimated useful life of the asset. Useful lives apply to assets acquired in new condition. Assets acquired in used condition would be depreciated over their expected remaining useful life. Interior has made a determination of the standard range of useful lives for the following major asset types. Examples of individual asset types are provided.
Buildings, Other Structures and Facilities:
The useful lives of components of Water Projects Subject to User Charges shall be determined in accordance with established industry standards and would not necessarily coincide with the ranges stated above. If established industry standards do not reflect a reasonable useful life, consult with your financial management office to determine the appropriate period. The method of estimating the useful life of a project and/or its components must be documented and consistently applied within the limits of the statutory and regulatory framework.
If an asset has special considerations or is not listed, a memorandum from a qualified facility management professional to document an alternative useful live should be placed in the property file of record.
Implementation guidance – The change in capitalization threshold, from Bureau specific or $50,000 per item acquisition cost in previous years to $100,000 per item in FY 04 and beyond, is not retroactive. All real property placed into service prior to FY 04, with an initial capitalization cost of Bureau specific threshold or $50,000 per item will remain capitalized. All real property placed into service in FY04 and beyond, with an acquisition cost of $100,000 per item will be capitalized. The useful lives of currently held property need not be changed to reflect the new useful lives effective October 1, 2003. Depreciation is changed prospectively, thus, no change is made to accumulated depreciation reported to date.
Transactions involving the acquisition of real property are to be recognized in the accounting records and official property subsidiary records within ten working days of acquisition, but in no case later than the last day of the month in which the transaction occurs.
The acquisition date of purchased real property is the date that title passes to Interior. Title shall be considered to be passed when a cognizant Government official accepts the property for the Agency.
The acquisition of constructed real property is the date that the asset is accepted or placed in service. This is defined as the date that the certificate of occupancy is signed by the responsible official.
Construction in Progress.
In the case of real property constructed for Interior, it shall be recorded in the general ledger as construction work in progress until it is placed in service by Interior, at which time the balance will be transferred to real property. The cognizant government official accepting such property is normally the Contracting Officer, or that Officer's designated representative, who is responsible for notifying the Real Property Officer of the acceptance.
Capitalization of construction work in progress will not be delayed pending final acceptance of residual closeout work such as punch lists. At fiscal year-end, special care shall be taken to ensure that any assets meeting the timing of capitalization criteria are capitalized regardless of whether there are costs remaining to be paid. The amount capitalized should be the costs incurred to date that meet requirements in Section IX. Valuation. However, all appropriate costs (as defined in Section IX "Valuation"), including any unpaid vouchers remaining at the time of acceptance, will subsequently be included in the total cost of the asset since construction of real property is treated as a single event.
Obsolete or Unserviceable.
Real property which no longer provides service in the operations of the entity will be removed from the accounts. Obsolete property shall be recorded in an appropriate asset account at its expected net realizable value. Any difference in the book value of the PP&E and its expected net realizable value shall be recognized as a gain or a loss in the period of adjustment. The expected net realizable value shall be adjusted at the end of each accounting period and any further adjustments in value recognized as a gain or a loss. However, no additional depreciation/amortization shall be taken once such assets are removed from general PP&E in anticipation of disposal, retirement, or removal from service.
Real Property Not in Use.
Real property disposed of, retired or removed from service by Interior will be removed from the real property accounts. The Real Property Officer shall notify the Deputy Chief Financial Officer when real property for which Interior is accountable is no longer being used for Interior purposes. Assets to be sold or transferred will be reclassified to another appropriate asset account until sold or transferred. Assets to be disposed of will be written off. Based upon this notice, the Deputy Chief Financial Officer shall remove the capitalized cost of the real property and related accumulated depreciation from the accounting records. The Real Property Officer shall also notify the Deputy Chief Financial Officer in the unlikely event the real property is returned to active Interior use, so it can be returned to capitalized status in the accounting records.
When real property has been sold, abandoned, or destroyed, the property must be removed from the property records and an appropriate accounting transaction must be recorded to reflect the disposition of the property and any related gain or loss. The same treatment is necessary when property has been declared excess and accountability transferred to another Federal agency. Cash received as a result of sale or transfer will be handled in accordance with appropriate budget rules. Real property disposal will be accomplished in accordance with Federal Property Management Regulation (FPMR) 101-47, or other statutory authorities.
Substance versus Form.
Transactions are to be recorded when they occur, as discussed above. However, in some cases official paperwork transferring title or documenting acceptance is delayed for an extended period of time. If a building or structure is complete and in use by Interior for its intended purpose, delays in paperwork are not a justification for failure to recognize the asset. For example, in some cases a building is occupied by employees and used for its intended purpose for several years even though facilities management personnel have not formally accepted the building awaiting final repairs or improvements by the contractor. This building would be considered to be in service and would be recognized as an Interior asset.
Maintenance excludes activities aimed at expanding the capacity of an asset or otherwise upgrading it to serve needs different from, or significantly greater than, those originally intended. Maintenance activities shall be expensed.
< >The lease transfers ownership of the property to the lessee by the end of the lease term.
The lease contains an option to purchase the leased property at a bargain price.
The lease term is equal to or greater than 75 percent of estimated economic life of the leased property.
The present value of rental and other minimum lease payments, excluding that portion of the payments representing executory costs, equals or exceeds 90 percent of the fair value of the leased property.
Certificate of Delivery and Acceptance
A document that is signed by the lessee to acknowledge that the asset to be leased has been delivered and is acceptable. Many lease agreements state that the actual lease term commences once this document has been signed.
< >Heritage Assets - property, plant, and equipment of historical, natural, cultural, educational, or artistic significance.
Stewardship Land - land other than that acquired for in connection with general PP&E.