New GFOA guidance on controlling noncapitalized items: management of a government's centralized finance function must take positive steps to ensure that adequate control is maintained over three categories of items that commonly are not reported as assets in a government's financial statements.

• Author: Gauthier, Stephen J.
• Position: Government Finance Officers Association

The GFOA Executive Board recently approved a recommended practice entitled Ensuring Control over Noncapitalized Items. The new guidance builds upon an earlier recommended practice, Establishing Appropriate Capitalization Thresholds for Tangible Capital Assets.

BACKGROUND

Governments often purchase or construct items that will provide service for more than one fiscal period, such as equipment. As a practical matter, only outlays that exceed a predetermined amount--called the "capitalization threshold"--are reported as assets in the financial statements. In 1997, GFOA formally recommended that this amount never be less than $5,000. That same recommended practice underscored the need for governments to ensure adequate control over items that are not reported in the financial statements because they failed to meet the capitalization threshold. The latest GFOA recommended practice offers practical guidance to help governments fulfill this responsibility.

SUMMARY OF NEW GUIDANCE

Management of a government's centralized finance function (or other designated finance function) must take positive steps to ensure that adequate control is maintained over three categories of items that commonly are not reported as assets in a government's financial statements:

* Items that require special attention to ensure legal compliance. Legal or contractual provisions may require a higher than ordinary level of accountability over certain capital-type items, such as those acquired through grant contracts.

* Items that require special attention to protect public safety and avoid potential liability. Some capital-type items by their very nature pose a risk to public safety and could be the source of potential liability. Police weapons are a prime example.

* Items that require special attention to compensate for a heightened risk of theft. Some capital-type items are both easily transportable and readily marketable or easily diverted to personal use. One example of this type of "walk-away" item is sound equipment.

Typically, items in each of these categories are already controlled, at least to some extent, at the departmental level. For example, the chief of police normally will maintain a list of weapons within the police department. The new GFOA recommended practice suggests that managers in the centralized finance function (or other designated finance function)...