OFFICE OF THE CHIEF FINANCIAL OFFICER

CFOFINANCIAL POLICY AND TRAINING OFFICE

Color of Money:Operating Versus Capital

Presented by

Tim Young

OFFICE OF THE CHIEF FINANCIAL OFFICER

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Objectives

• Importance of Color of Money

• Equipment – When to Use Operating Funds

• Equipment – When to Use Capital Funds

• Construction – When to use Operating Funds

• Construction – When to use Capital Funds

OFFICE OF THE CHIEF FINANCIAL OFFICER

CFO3FINANCIAL POLICY AND TRAINING OFFICE

Capitalization Changes

Purchased after October 1, 2005:

• Useful life criteria New Capitalization Threshold• $50K new threshold• Service life remains at 2 years or more• FMSIC requested the change• $5K threshold for property accountability does not change• For property acquired starting in FY06• Equipment purchased before FY06 with a value less than

$50K will not be written-off

OFFICE OF THE CHIEF FINANCIAL OFFICER

CFO4FINANCIAL POLICY AND TRAINING OFFICE

Why Worry About the Color of Money?

• Financial statements must accurately reflect asset balances

• Heavily audited activity• Funding must be used for its intended purpose• DOE policies prescribe capitalization criteria• Accurate usage of Operating versus Capital funding

at the beginning of a project is essential to accurately report financial statements to DOE, UC, and outside audit firms

OFFICE OF THE CHIEF FINANCIAL OFFICER

CFO5FINANCIAL POLICY AND TRAINING OFFICE

Hierarchy of Accounting Rules

• Contract 31

• DOE Accounting Handbook

• Federal Financial Accounting Standards (FFAS)

• Financial Accounting Standard Board – Generally Accepted Accounting Principles (GAAP)

OFFICE OF THE CHIEF FINANCIAL OFFICER

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Color of Money

1 >50k$ & Service Life >2 years

2 <50k$ & Service Life <2 years

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Construction

Operating Funds:

• Repair – restoration of a deteriorated facility• Maintenance – day-to-day work to maintain and

preserve the facility• Alteration – adjustments to the interior

arrangements of a facility• Experimental and Demonstration (ED) – unique

prototype facility constructed to demonstrate the feasibility of a particular process

• Operating Lease

OFFICE OF THE CHIEF FINANCIAL OFFICER

CFO8FINANCIAL POLICY AND TRAINING OFFICE

Construction

Capital Funds:

• Betterments – improvements that result in better quality, higher capacity, or extended useful life

• Construction – new plant facility; improvement to existing facility

• Conversion – major structural revision that changes functional purpose

• Install or assemble a new utility system• Capital Lease

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CFO9FINANCIAL POLICY AND TRAINING OFFICE

Equipment/Fabrication

Operating Funds:

• Cost less than $50K

• Service life less than 2 years

• Prototype, inherently experimental, or expected to be consumed within 2 years

• Like-for-like replacement (essentially same performance capabilities)

OFFICE OF THE CHIEF FINANCIAL OFFICER

CFO10FINANCIAL POLICY AND TRAINING OFFICE

• Capital Funds:– Equipment that has a service life of two or more

years, and costs $50K or above (invoice price, transportation charges, modification and installation costs)

• Fabrication of equipment to accomplish a special purpose in the performance of a project

• Betterments to an existing unit

Equipment/Fabrication

OFFICE OF THE CHIEF FINANCIAL OFFICER

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Color of Money Committee

• Purposes:– Examine proposals for GPP, GPE and Non-Cap $– Ad hoc issues

• Committee Members– Facilities - Rich McClure and Emmy Randol– OCFO – Anne Moore, Michelle Blaha, Sonya Neely

and Tim Young

OFFICE OF THE CHIEF FINANCIAL OFFICER

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Current Process

• Requests for GPP, GPE and Non-Cap – Annual Call

• Process:– Divisions submit a proposal to Rich McClure, Facilities

Planning– Proposals are reviewed by the Color of Money

Committee– Proposals initially accepted are compiled and sent to

senior management for prioritization and funding