Filed under: Audit & Assurance, Federal Grant & Contract Consulting, Not-for-Profits
If your organization has received federal grant assistance to fund an equipment purchase, the Uniform Guidance has requirements that must be followed in the use, management, and disposition of the funded equipment. The equipment management requirements of the Uniform Guidance are contained in Subpart D and specifically at 2 CFR Part 200.313. Though some of these requirements are intuitive, many are not, and they will require specific procedures to be put into place to comply.
Defining Equipment
To start, equipment is defined as “tangible personal property (including information technology systems) having a useful life of more than one year and a per-unit acquisition cost which equals or exceeds the lesser of the capitalization level established by the non-federal entity for financial statement purposes or $5,000 (2 Code of Federal Regulations (CFR) Part 200.1).”
In addition, the equipment management requirements apply whether the equipment was funded in whole or in part by a federal award.
The Requirements
The following are the key equipment management requirements included in the referenced part of the CFR:
Use
Equipment must be used by the entity in the program or project for which it was acquired as long as needed, whether or not the project or program continues to be supported by the federal award, and the non-federal entity must not encumber the property without prior approval of the federal awarding agency. When no longer needed for the original project, the equipment would then be used under other activities funded by federal awards.
Property Records
Property records will need to be maintained with specific information, including serial number or other identification number, the source of funding for the property (Federal Award Identification Number, etc.), percentage of federal participation in the project costs, the location, and the use and condition of the property. This additional information for federally funded equipment can either be added to your existing fixed asset listing or maintained in a separate, standalone schedule.
The property record details are not only needed to ensure adequate tracking of the equipment but also to identify what portion of depreciation expense was federally funded, as to not turnaround and allocate those same costs to federal awards through either direct or indirect cost allocations.
Physical Inventory
A physical inventory of the property must be taken, and the results reconciled with the property records, at least once every two years. A point of clarity here is that a physical inventory is not needed for all property owned by the entity and, instead, is directed towards just the federally funded property maintained by the entity.
Similar to the detailed information needed in the property records, the physical inventory process is not a typical step taken by entities, so it will require procedures be developed to ensure the physical inventory is performed and documented. During the pandemic, some federal agencies were providing waivers on performing the required physical inventory. Because of the pandemic’s passage of time, entities with federally funded equipment should be making plans to perform this inventory if they have not over the past two years.
Disposition
Disposition of the federally funded equipment is required when it is no longer needed for the original project or for activities funded by other federal awards. If not specifically identified in the federal award’s terms and conditions, the entity will need to request disposition instructions from the federal awarding agency. If the federal awarding agency fails to provide disposition instructions within 120 days of requesting them, or the items of equipment have a current per-unit fair market value of $5,000 or less, the federally funded equipment may be retained by the entity or sold.
Internal Controls
Designing and implementing appropriate internal controls is key to complying with the equipment management requirements. Example internal control activities could consist of:
- Written procedures exist covering the organization’s requirements for federally funded property and equipment management, including identification and tracking of covered equipment, as well as the required biennial physical inventory
- Reviewing federal award agreements and identifying specific equipment requirements, including disposition instructions
- Property and equipment listings associated with federal funds are reviewed periodically by knowledgeable staff to ensure completeness and accuracy
- Segregation of duties exist between the accounting for property and those responsible for safeguarding the property
With the knowledge of the Uniform Guidance requirements and the proper implementation of appropriate internal controls, your organization can confidently manage federally funded equipment and continue on with your impactful work.
Reach out to a Clark Nuber federal grants expert with additional questions or if you need help applying these requirements to your organization.
© Clark Nuber PS, 2022. All Rights Reserved.
