Real Property and Financial Management Policy

Table of Contents

1. Purpose
    
2. Authorities
    
3. Responsibilities
    
4. Effective Date
    
5. Policy
    
6. Property Classifications
    
7. Capitalization Criteria
    
8. Records
    
9. Valuation
    
10. Depreciation
     
11. Estimated Useful Life
     
12. Transaction Dates
     
13. Maintenance
     
14. Glossary
     

1. Purpose

   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.

2. AUTHORITIES:

   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
    

3. RESPONSIBILITIES:

   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.
    

   1. Chief Financial Officers of Bureaus and Offices are responsible for:
       
      1. Ensuring that adequate financial controls are in place and financial records and reports accurately reflect the status of real property in accordance with these policies.
          
      2. Ensuring independent control of data in the accounting system.
          
      3. Reconciling accounting system data to the official real property subsidiary records at least monthly.
          
      4. Maintaining documentation of account reconciliations. This documentation must be available for review by the auditors.
          
      5. Maintaining financial records in cooperation with Real Property Officers and Facility Managers for each capital facility project in progress. These records are the source for entries to the general ledger work in progress accounts. The Contracting Officer or their Representative, in consultation with the Real Property Officer, is responsible for furnishing information to identify costs applicable to construction work in progress.
          
      6. Maintaining close liaison with property management, facilities management and other personnel concerned with real property to provide assurance that values reported are accurate.
          
   2. Persons who manage real property are responsible for:
       
      1. Ensuring that real property accounts are reconciled and inventories are documented.
          
      2. Maintaining all records related to real property, including records of financial transactions related to real property.
          
      3. Reconciling official real property subsidiary data to the accounting system data at least monthly.
          
      4. Performing physical inventories. The inventory must be reconciled with financial and property records, and the accuracy of the results must be certified by the accountable officer or designee. These physical inventories must be coordinated with the OIG and other auditors.
          
      5. Maintaining documentation of physical inventories. This documentation must be available for review by auditors.
          
      6. Maintaining close liaison with Chief Financial Officers and other personnel involved with real property to provide assurance that values reported are accurate.
          

4. EFFECTIVE DATE:

   This policy is effective upon issuance with the exception of capitalization thresholds and useful lives of currently held property.
    

   1. Capitalization thresholds are effective for transactions that occur after October 1, 2003.
       
   2. New useful lives for real property are effective October 1, 2003. The useful lives of currently held property need not be changed to reflect the new useful lives. Depreciation is changed prospectively, thus, no change would be made to accumulated depreciation reported to date.

Early implementation of this policy may be requested by bureaus/offices by following procedures outlined in the Policy section below.

5. POLICY:

   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.
    

6. PROPERTY CLASSIFICATIONS

   The content for the Property Classifications section of this policy has been replaced by the following policy document: DOI-AAAP-0120, Classifying Property, Plant, and Equipment
    

7. CAPITALIZATION CRITERIA

   The content for the Capitalization Criteria section of this policy has been replaced by the following policy document: DOI-AAAP-0122, Property, Plant, and Equipment - Capitalization Criteria

12. TRANSACTION DATES
     
13. Acquisition 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.

    Disposal.

    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.
    

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    13. MAINTENANCE
         
        1. Maintenance is the act of keeping assets in usable condition, including preventive maintenance, normal repairs, replacement of parts and structural components (such as a roof) and other activities needed to preserve the asset so that it continues to provide acceptable services and achieves its expected life.

           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.
            

        2. Deferred Maintenance is maintenance that was not performed when it should have been or was scheduled to be and which, therefore, is put off or delayed for a future period.
            
           1. Measurement. Amounts reported for deferred maintenance will be determined using the “Condition Assessment Survey” method.
               
           2. Condition Assessment Survey. A Condition Assessment Survey is the periodic inspection of real property to determine its current condition and provide a cost estimate to make necessary repairs.
               
           3. Deferred Maintenance Reporting Requirements. The following information shall be presented as Required Supplementary Information:
               
              • Identification of each major class of asset for which maintenance has been deferred. “Major classes” of general PP&E shall be determined by the entity. Examples of major class include, among others, buildings, structures, and land.
                 
              • Method of measuring deferred maintenance for each major class of real property.
                 
              • If the Condition Assessment Survey Method of measuring deferred maintenance is used, the following must be presented:
                 
           4. 1. description of requirements or standards for acceptable operating condition
                  
              2. any changes in the condition requirements
                  
              3. asset condition and a range estimate of the dollar amount of maintenance needed to return it to its acceptable operating condition.
                  

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    14. Glossary
    15. Accountability
        Property accountability includes responsibilities for such tasks as tracking the movement of assets, recording changes in physical condition and verification of physical counts. The property managers must exercise this responsibility and maintain proper control over an organizations assets through record keeping, effective policies and procedures, and appropriate security controls.
         
    16. Capital Asset
        Land, structures, equipment, and intellectual property, including software, that are used by the Federal Government and have an estimated useful life of 2 years or more. The cost of a capital asset includes both its purchase price and all other costs incurred to bring it to a form and location suitable for its intended use. Capital assets may be acquired in different ways: through purchase, construction, or manufacture; through lease-purchase or other capital lease, regardless of whether title has passed to the Federal Government; through an operating lease for an asset with an estimated useful life of 2 years or more; or through exchange. Capital assets include the assets as initially acquired but also additions, improvements, replacements, rearrangements and reinstallations, and major repairs, but not ordinary repairs and maintenance.
         
    17. Capital Lease
        Capital leases are leases that transfer substantially all the benefits and risks of ownership to the lessee. If, at its inception, a lease meets one or more of the following four criteria, the lease should be classified as a capital lease by the lessee. Otherwise, it should be classified as an operating lease.

        < >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.
         

    18. Deferred Maintenance
        Maintenance that was not performed when it should have been or when it was scheduled to be and which, therefore, is put off or delayed for a future period. Code compliance (e.g., life safety, ADA, OSHA, environmental, etc.) and other regulatory or Executive Order compliance requirements not met on schedule are considered deferred maintenance.
         
    19. Depreciation
        A reasonable allowance for exhaustion, wear and tear, and obsolescence, that is taken by the owner of the property and by which the cost of property is allocated over time. Depreciation decreases the balance sheet assets and is also recorded as an operating expense for each period.
         
    20. Early Termination
        Occurs when the lessee returns the lease equipment to the lessor prior to end of the lease term as permitted by the original lease contract or subsequent agreement. At times this may result in a penalty to the lessee.
         
    21. Earthen Structures
        Composed of earth or other suitable material that retain water. Dikes, levees, and ditch plugs are examples of earthen structures. Earthen structures are not usually capitalized.
         
    22. Economic Life of Leased Property
        The estimated period during which the property is expected to be economically usable by one or more users, with nominal repairs and maintenance for the purposes for which it was intended at the inception of the lease.
         
    23. End-of-Term Options
        Options stated in the lease agreement that give the lessee flexibility in its treatment of the leased asset at the end of lease term. Common end-of-term options include purchasing the equipment, renewing the lease or returning the equipment to the lessor.
         
    24. Fair Market Value
        The estimated price that both a buyer and seller would willingly agree to when neither party is under undue pressure to complete the transaction.
         
    25. Fair Market Value Lease
        A lease which includes an option for the lessee to either renew the lease at a fair market value renewal or purchase the asset for its fair market value at the end of the lease term.
         
    26. Fixed Purchase Option
        An option given to the lessee to purchase the leased asset from the lessor on the option date for a guaranteed price. Both the date and the price must be determined at the inception of the lease. A typical fixed purchase option is 10% of the original cost of the asset.
         
    27. Incidental Costs
        Incidental Costs associated with the acquisition of land, such as costs to relocate current tenants, demolish unnecessary structures, etc., are considered part of the acquisition cost of the land. These costs are capitalized if associated with General PP&E Land and expensed if associated with stewardship land.
         
    28. Lease
        A contract through which an owner of an asset (the lessor) conveys the right to use its asset to another party (the lessee) for a specified period of time (the lease term) for specified periodic payments.
         
    29. Net Book Value
        The net amount at which an asset or a liability is carried on the books of account. Net book value is the acquisition cost of the asset less the accumulated depreciation.
         
    30. Placed in Service
        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.
         
    31. Present Value
        The discounted value of a payment or stream of payments to be received in the future, taking into consideration a specific interest or discount rate. Present Value represents a series of future cash flows expressed in today's dollars.
         
    32. Purchase Option
        An option given to the lessee to purchase the asset from the lessor, usually as of a specified date.
         
    33. Real Property Accountability Record
        Information captured to support the entire life cycle of real property from acquisition through disposal. This data includes, but is not limited to, original acquisition cost, description, useful life, depreciation start date, accumulated depreciation, etc.
         
    34. Residual Value
        The book value that the lessor depreciated a piece of equipment down to during the lease term, typically based on an estimate of the future values, less a safety margin.
         
    35. Salvage Value
        Salvage value is the expected sale price of an asset at the end of its usefulness to the agency.
         
    36. Stewardship
        Stewardship Property, Plant, and Equipment (PP&E) - property owned by the Federal Government and meeting the definition of one of the following categories:

        < >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.

    37. Straight Line Depreciation
        A method of depreciation that assumes an asset will lose an equal amount of value each year. It is calculated by taking the purchase price of the asset subtracted by the salvage value and divided by the asset's useful life.
         
    38. Upgrade
        To trade in a leased asset for a newer, more advanced model during the lease term.
         
    39. Useful Life
        The period of time during which an asset will have economic value and be usable. The useful life of an asset is sometimes called the economic life of the asset.