Section 9: Construction Accounting Page 1 of 6

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1 Section 9: Construction Accounting Page 1 of 6 Table of Contents I. Overview... 2 II. Construction Terminology... 2 III. Introduction... 3 IV. Procedures... 4

2 Section 9: Construction Accounting Page 2 of 6 I. Overview The purpose of this section is to establish accounting guidelines for all University remodeling, renovations and new building construction that are consistent with State, Federal and generally accepted accounting principles (GAAP). This section references the procedures and guidelines for the State University System Construction Accounting as described in F.S. Chapter Each University is responsible for the recording, processing, and reporting of construction transactions in accordance with applicable laws, rules, and regulations. II. Construction Terminology A. New Construction New construction is defined as any construction of a building in which the entire work is new or an entirely new addition connected to an existing building. B. Remodeling Remodeling is defined as changing an existing facility by rearrangement of space and their use and includes but not limited to, the conversion of a classroom into a laboratory or the conversion of a closed plan arrangement into an open plan arrangement. Renovation or upgrading of an existing building is defined as replacement of materials and equipment and includes but not limited to, interior or exterior reconditioning of facilities and spaces, air conditioning, heating or ventilating equipment. C. Maintenance & Repair Maintenance & repair is defined as the upkeep of educational and ancillary plants excluding renovation and including but not limited to, roof or roofing replacement of membrane or structure, repainting of interior or exterior surfaces, resurfacing of floors, repairs of hardware, furniture or equipment, electrical fixtures, plumbing fixtures, and repair or resurfacing of parking lots, roads and walkways. D. Minor Construction Project Minor construction projects are defined as projects for which the estimated cost is $500,000 or less. Minor projects are classified as: 1. Projects funded by the Legislature in its aggregate appropriations, such as deferred maintenance, remodeling, renovation, maintenance, repairs and site improvements. 2. Projects funded as line items by the Legislature. 3. Projects funded from University funds such as Auxiliary or Grant funds.

3 Section 9: Construction Accounting Page 3 of 6 E. Fixed Capital Outlay Fixed Capital Outlay refers to real property (land, buildings, fixed equipment, structures, etc.), that include additions, replacements, major repairs and renovations to real property which materially improve or change its functional use. Additions, improvements, and other outlays that significantly extend the useful life of an asset are capitalized. Other costs incurred for repairs and maintenance is expensed as incurred. The University has a capitalization threshold of $100,000 for building renovations and improvements. Depreciation is computed on the straight-line basis over the estimated useful life of the related assets. III. Introduction A. Capital Budget, Appropriations, and Release Authorization The process begins with determining the capital needs of the University. A Five-Year Capital Improvement Plan (CIP-2) and Legislative Budget Request is developed and introduced to the state legislators for inclusion in the state budget agenda. A Proposed State Budget is developed in the legislative branch of the state government where The House of Representatives and the Senate vote on the Proposed State Budget with an up or down vote without line item veto authority. Once approved by the House and Senate, the budget goes to the Governor for review and action. If approved, the appropriation moves from the Governor s Office of Planning and Budgeting to the Florida Department of Education (FDOE) where the funds are released. The appropriation is recorded in Banner Finance recognizing the receivable and revenue to the University. The new appropriation is given a five digit fund number with the first digit being a 5 representing the fund type as construction. When the University enters into a contract for a construction project, the funds must be encumbered for this project at the state level. An FDOE Form 352 is completed and a copy sent to FDOE. Once encumbered, the fund appears on the FDOE Form 442 report that arrives monthly. The Form 442 reports the activity of construction projects by FDOE number and fiscal year, and is the form used for requesting cash disbursement. B. Project File The construction project file is established and maintained by the Facilities Planning Department. This file includes the original, signed construction contract for both the Construction Manager and the Architect for each construction project. A copy of all Change Orders and Additional Service Authorizations are kept in the file. C. Encumbrances Upon receipt of an approved contract, Facilities Planning requests the funds to be encumbered in Banner on the Encumbrance/Reservation Maintenance Form FGAENCB. During the course of the construction process, Change Orders and Additional Service Authorizations are approved by the Director of Facilities Planning and

4 Section 9: Construction Accounting Page 4 of 6 recorded in Banner so that the amount encumbered for each project reflects the changes. The Banner Open Encumbrances Report, FGROPNE, is reviewed periodically by Construction Accounting with Facilities Planning for monitoring old encumbrances requiring closure. IV. Procedures A. Processing Invoices and Purchase Requisitions All invoices and purchase requisitions that are paid from construction funds are coded by the Facilities Planning Department and authorized by the Director of Facilities Planning. The Facilities Planning Department keeps a record of the purchase requisitions by project name for year-end capitalization purposes. B. Construction Life to Date (LTD) Construction Trust Fund Analysis File Monthly, the LTD Construction Trust Fund Analysis File is updated with Banner activity and reconciled with Banner. Appropriations and Cash received are recorded on the spreadsheet. Expenditures, ending cash balances, and encumbrances are recorded from Banner FGITBAL, the General Ledger Trial Balance, for each construction fund. After the close of each month, a copy of the updated LTD is provided to the Director of Facilities Planning. The LTD report is used to record Construction in Progress as a journal entry into the University s Annual Financial Report. In addition, the LTD report is used as supporting documentation to record the new building or improvements into the University s Fixed Asset System. Prior to month end close, the LTD Construction file is updated with Banner activity along with the expected expenditures for the next 30 days that are received from Facilities Planning. It is entered into the Form 442 Monthly File. From this, the information is entered through NWRDC into Florida Department of Education (FDOE) Educational Facilities Accounting System. After the information has been updated and sent electronically to FDOE, a copy of the completed Form 442 File is ed to FDOE and to the Director of Finance & Accounting. The Form 442 arrives from FDOE the third week of every month. The information entered references the prior month. There is a deadline for sending the information on the Form 442 to FDOE. (The deadline varies and is noted on the form.) If a cash draw is triggered, the cash will arrive on the third Friday of the month following the Form 442 entry deadline. When the cash arrives it will be recorded in Banner with a JE16, entered on the monthly LTD, and the fund balances checked in FGITBAL. The Banner entry is a debit to cash and a credit to the receivable. C. Remittance of Capital Improvement Fees Capital Improvement Fees are remitted to FDOE. The fees are remitted once a month, or when the amount to be remitted is greater than $50,000 (whichever occurs first.) Banner FGITBAL is checked for cash balances in Fund and Fund The cash balances in these fee accounts are remitted by check to the FDOE Comptroller early in the month following the month in which the fees are received by the University.

5 Section 9: Construction Accounting Page 5 of 6 The Check request is sent to Accounts Payable with a note referencing the accounts to be used for the remittance of the Capital Improvement Fees. A schedule of each remittance is kept in the Capital improvement Fees Remitted File and verified in Banner. Note: Prior to July 1, 2012, a Building Fee was also collected and remitted to FDOE. Board of Governors Regulation was amended as of July 1, 2012 to eliminate the Building Fee and merge into a single fee (the Capital Improvement Fee). D. Alec P. Courtelis University Facility Enhancement Challenge Grant Program A University may be eligible to participate in this program if it raises a contribution equal to one-half of the total cost of a facilities construction project from private nongovernmental sources. The amount shall be matched by a state appropriation equal to the amount raised for a facilities construction project subject to the General Appropriations Act. State matching funds are temporarily suspended for donations received for this program. However, it may restart in the future pursuant to ss , , and For further details on this program refer to ss E. Fixed Capital Outlay Reversion of Funds Each year FDOE sends to the University a document regarding appropriations that are subject to reversion on February 1 of that year. A response is required by the University by the February deadline. This document is sent to the Facilities Planning Department to be completed, and once completed forwarded by Construction Accounting to FDOE. F. Owner Direct Purchasing The Owner Direct Purchasing Program (ODP) is intended to save on construction costs by directly purchasing construction materials, supplies and permanent fixtures for use in construction projects. By purchasing the materials and fixtures directly, the University will be able to utilize its tax exempt status and thereby save the cost of sales tax that would be charged if the construction manager purchased the materials for the project. Sales are considered taxable to the contractor unless it can be demonstrated that such sales are, in substance, tax exempt direct sales to the University. All Public Education Capital Outlay (PECO) and other construction projects qualify for the ODP including new construction, remodels, renovations, additions, infrastructure or other construction projects identified by the University. Projects are assessed an upfront ODP fee to cover the cost of the Program. Eligible items are identified by the University s Facilities Planning Department for each project. These items may include materials, supplies and permanent fixtures for property improvements or tangible personal property purchased in conjunction with a construction project such as furniture and equipment. Eligible items are shared with the Construction Manager (CM) who further shares with potential contractors who are bidding the various trade packages.

6 Section 9: Construction Accounting Page 6 of 6 Once bids are selected and purchase requisitions prepared, the CM executes separate Change Orders corresponding to the amount of each selection (type) of materials/equipment and the associated tax savings to be removed from the construction contract. The Assistant Director in Finance & Accounting for Construction confirms the tax savings between the purchase requisitions and change orders. The Assistant Director in Finance & Accounting for Construction tracks the tax savings by project and calculates the percentage of tax savings to project total cost. The data is aggregated for all projects as part of a process to periodically review the ODP fee against the cost of the program and propose adjustments to the fee if needed.