LOYOLA UNIVERSITY CHICAGO POLICIES AND PROCEDURES

CAPITAL EXPENDITURE POLICY

POLICY NUMBER: 09200301 RESPONSIBLE OFFICE: University Budgeting & Financial Analysis LAST REVISED: August 2009

Capital budgeting at Loyola University Chicago requires advanced planning and management approval to ensure that projects are properly evaluated and prioritized and consistent with the universitys strategic vision and campus master plan.

TABLE OF CONTENTS Purpose Scope Who Should Know This Policy Contacts Definitions Related Documents/Forms Procedures A. Capital Funding B. Capital Expenditure Planning Process C. Completing an Initial Capital Budget Request D. Completing a Detailed Capital Budget Request E. Cost Overruns and Capital Budget Amendment Forms F. Project Set-Up and Tracking 1 1 2 2 2 3 3 3 3 6 6 8 9

PURPOSE
To provide guidelines under which capital expenditures will be approved and prioritized for the Current Fiscal Year Capital Budget and 3-Year Capital Plan. To ensure that capital expenditures are properly monitored and tracked.

SCOPE
This procedure applies to all construction, capital improvements, major equipment purchases and other special projects requiring one or more expenditures totaling $25,000 or more. This includes projects that are partially or fully funded by outside funding sources (e.g. grants, gifts, etc.). Examples include: New construction (new buildings or major additions) Building repairs, renovations, demolition, or upgrades Major maintenance (capital renewal and deferred maintenance) Safety, ADA, or Legal Compliance construction projects Energy conservation improvements Grounds improvement Real Estate Acquisition or Leasing Vehicles

HVAC Telecommunication and Information Technology systems (hardware and/or software) New or replacement equipment or furniture This process is designed to handle projects over $25k. VP Facilities has been allocated a certain amount each year to address small maintenance and emergency projects under this threshold. Other requests under $25k should be included in the departments operating budgets.

WHO SHOULD KNOW THIS POLICY

President Provost Vice Presidents Deans Area Directors Other Finance/Accounting Personnel

CONTACTS
For questions regarding this policy, please contact University Budgeting & Financial Analysis at extension 5-7676.

DEFINITIONS
Capital Capital Assets are real or personal property that have a value greater than or equal to $5,000 and have an estimated life of greater than one year. Capital assets should be recorded at their historical costs, which include the vendors invoice, initial installation cost, modifications, attachments, accessories necessary to make the asset usable. Historical costs include ancillary charges such as freight, site preparation costs, and professional and legal fees. For a repair or replacement to be capitalized, it must be part of a major repair or rehabilitation project, which increases the value and useful life of the building, such as the renovation of a student center or conversion of a basement to a usable classroom space. A replacement may also be capitalized if the new item/part is of significantly improved quality and higher value compared to the old item such as the replacement of an old shingle roof with a new fireproof roof. Replacement or restoration to original utility level would not qualify for treatment as a capital item. Determinations must be made on a case by case basis. The following expenditures are examples of maintenance expenses that would not be capitalized: Interior renovation such as repainting, replacement of carpet, plumbing or electrical repairs, cleaning, replacement of a part of a building with a new part of the same type and performance capabilities, such as the replacement of an old boiler with a new one of the same type and performance capabilities.

Capital Planning Committee This committee will consist primarily of the Budget Review Team (President, Provost, Associate Provost, VP of Strategic Capital Planning, VP of Finance, VP of Human Resources, Director of University Budgeting & Financial Analysis, VP of Facilities). The committee is responsible for assessing the universitys capital needs and opportunities, evaluating them with respect to the universitys overall strategic plan, and establishing priorities for project implementation. They will prepare the Current Fiscal Year Capital Budget and 5-Year Capital Plan.

RELATED DOCUMENTS/FORMS
Initial Capital Budget Request Form Detailed Capital Budget Request Form Capital Budget Amendment Form Signature Card Returned in Mail

PROCEDURES
A. CAPITAL FUNDING In order to begin planning for future capital expenditures, there must be expendable funds available in the capital budget. Expendable funds can be general funds or funds related to a specific project. 1. General funds are defined as those funds available to be expended on any capital project authorized by the University. The annual depreciation is the initial deposit to the capital budget and it becomes available for approved capital expenditures. The initial estimate of depreciation will be adjusted to actual at year end. From time to time other general funding becomes available and is assigned to the capital budget by the CFO. These funds are available as general funding unless they are specifically identified to a specific project. 2. Specific funding is specifically related to a project. An example would be a bond financial construction project. These funds will be segregated from general operating funds and brought into the capital budget as funds are expended on the project. Due to timing of project expenditures, funding will be broken out to equal current year expenditures.

3.

B. CAPITAL EXPENDITURE PLANNING PROCESS The Capital Planning Process at Loyola University will result in a prioritized list of projects for the Current Fiscal Year Capital Budget and 3-Year Capital Plan. In general, the projects to be incorporated into the Capital Plan must reflect Loyola Universitys overall strategic vision, campus master plan, and academic initiatives. Each request for a capital expenditure should be subject to the following steps/timeline (please refer to Appendix A for a Flow Chart of the Capital Planning Process). The Capital Planning process will be initiated each year by the department of University Budgeting & Financial Analysis in a memo to the Vice Presidents containing instructions for the current year budget process. The memo will request that each vice president solicit, review, and prioritize initial capital budget requests for those areas that fall under his/her responsibility.

Capital Planning Process 1. 2. 3. 4. Initial Development and Review of a Capital Proposal Provost/VP Review and Ranking Capital Planning Committee Review Finalize/Approve Current Fiscal Year Budget

Timeline August Sept. Sept. Oct. November April May

5. Project Authorized for Spending to Begin

Throughout Year

1.

Initial Development and Review of a Capital Proposal (August September)

When an individual identifies a capital need that falls under the above scope, he/she should complete an Initial Capital Budget Request Form and submit it to his/her Provost or Vice President. The proposal should meet a specific objective such as an academic or infrastructure requirement and be consistent with the universitys strategic plan and campus master plan. The purpose of this form is to encourage the flow of ideas and allow for advanced planning. The Initial Capital Budget Request Form should include the desired project timing, a brief description and justification of the project, a rough estimate of the project cost, and realistic potential of other funding sources such as grants or gifts. A very detailed analysis is not required at this point. This will be done after management review in order to prevent unnecessary work in case the project is not determined to be feasible given the universitys priorities and limited resources. Detailed instructions on how to prepare an Initial Capital Budget Request Form follow. An annual submission deadline will be set during the budgeting process each year in order for the capital projects to be included in the following Fiscal Year Capital Budget. If this date is missed, the forms may be submitted throughout the year for consideration in subsequent years Capital Budgets and the 5-year Capital Plan.

2. Provost/Vice President Review of Capital Proposals (September October) The Provost and/or Vice President will review the various Initial Capital Budget Request Forms developed by his/her staff and approve those they believe are consistent with institutional and academic priorities and the universitys strategic plan. If the Provost and/or Vice President is submitting multiple projects, he/she should assign a preliminary ranking of the projects importance using a letter grade (A being the highest) and add additional commentary if necessary. As the university has limited resources, he/she should only submit those projects that have a realistic funding potential. This is not intended to be a wish list. VPs should limit their lists to projects for which there is genuine and pressing need. VPs will then forward the Initial Capital Budget Request Forms (fully completed, approved, and ranked) to the VP of Facilities if the request is a facilities-related project. If the project involves information technology systems, the request should be forwarded to the Chief Information Officer. The VP of Facilities and the CIO will use these submissions to develop a master list of projects for the University, which will be forwarded to the Capital Planning Committee for further consideration.

3.

Capital Planning Committee Review (November April)

The Capital Planning Committee will review the master list of projects and various Initial Capital Budget Request Forms submitted by the Provost and Vice Presidents and will rank the projects and assign a priority. They will decide which of those projects have the highest priority/immediate need and merit further investigation. The Capital Planning Committee will at this time discuss various potential funding sources, internal and external, for the agreed upon list of projects. At this time, the Capital Planning Committee may also choose to defer some projects in order to make way for other more urgent projects that come up in the planning process. Vice Presidents will be notified which projects are selected for further development. The Capital Planning Committee will use the master list of projects to develop the 5-Year Capital Plan and Current Fiscal Year Capital Budget. To do so, they will need input from the VP Finance and the President about the estimated total institutional budget for capital projects in the coming fiscal year and next several years.

Please keep in mind that the process of prioritizing capital projects must allow for some flexibility. The development of the 5-Year Capital Plan is an annual exercise, but changing or unanticipated circumstances must be taken into consideration and incorporated into the plan.

4. Finalize Current Fiscal Year Budget (May) The Vice President of Finance and President will determine the total institutional budget for capital projects. The portion of the capital budget dedicated to facilities renewal (deferred maintenance, repair, and renovation) and infrastructure development will typically be roughly equal to the annual depreciation expense at the university. The Capital Planning Committee will review the master list of projects for the projects determined to have an immediate need or opportunity and finalize the Current Fiscal Year Budget. The total amount of the Current Fiscal Year Capital Budget and any individual expenditure over $3 Million should be forwarded to the Board for approval.

5. Project Authorized for Spending to Begin (Throughout Year) In order for spending on a project to begin, the project administrator must complete a Detailed Capital Budget Request Form and submit it to the VP of Facilities for his authorization of facilities-related projects, or to the CIO for his authorization of information technology systems projects. Final authorization must be given in the approval section of the Detailed Capital Budget Request Form as follows: Level of Responsibility Approval Limit VP/Provost < $100,000 President < $3,000,000 Board > $3,000,000 In addition, all projects are subject to the following approvals: VP Facilities Required for all projects that involve construction/remodeling Chief Information Officer Required for all projects that involve information services CFO Required for all projects All projects greater than $3M require presentation to the Board and Board Approval before commitment can be made to proceed with any type of expenditure. Projects under $3M should be reviewed by the VP/Provost of the area under which the project is submitted and the President (if over $100k). All projects should be reviewed by the CFO to ensure that they are consistent with university objectives and financially viable. All facility projects should be reviewed by the VP of Facilities to ensure that accurate cost estimates and agreement with the Campus Master Plan. Any new system implementations or IT projects require the approval of the Chief Information Officer. Once the VP of Facilities and/or the CIO have authorized the request, it is forwarded to the department of University Budgeting & Financial Analysis. This department will verify that the project has been preliminarily approved in the Current Fiscal Year Budget and has a funding source identified. University Budgeting & Financial Analysis will secure the authorization of both the VP of Finance and the President so that spending on the project may begin. Due to the changing environment in which the university operates and the desire to react quickly (and change priorities if necessary), these authorizations will be given throughout the course of the Fiscal Year rather than at budget time. Project administrators must ensure that the necessary authorizations have been obtained on the Detailed Capital Budget Request Form before committing to any type of expenditure. University Budgeting & Financial Analysis will assign an accounting unit only after the form has been fully authorized.

B. COMPLETING AN INITIAL CAPITAL BUDGET REQUEST FORM When an individual identifies a capital need that falls under the above scope, he/she should complete an Initial Capital Budget Request Form and submit it to his/her Provost or Vice President. The proposal should meet a specific objective such as an academic or infrastructure requirement and be consistent with the universitys strategic plan and campus master plan. The purpose of this form is to encourage the flow of ideas and allow for advanced planning. Typically these forms are submitted as part of the annual budgeting process. Section 1 - Project Details Please provide a descriptive title detailing the project such as Lewis Towers First Floor Renovation and the estimated life expectancy (anticipated life of the asset). Specify the Project Originators name, department, phone number, and campus location. The Project Originator is the individual who first recognized the need for a capital expenditure. Provide the desired project timing. Section 2 Project Description and Justification Include a brief description of the project and justify the need for the project. Section 3 Project Cost Estimate Provide a rough estimate of the total cost of the project. Section 4 Project Funding Sources Funding relates to the source of cash. Please specify here if it is known that some of the cash to fund the project will come from a gift, grant, or endowment. Section 5 Management Review of Project This section will be used by the VP/Provost and Management to evaluate the project. The project originator will be notified if a project has been selected to move onto the next phase and a more detailed analysis is required. C. COMPLETING A DETAILED CAPITAL BUDGET REQUEST FORM Each project is required to have a completed and approved Detailed Capital Budget Request Form (CBR) before any spending takes place. The Detailed CBR is designed to ensure that each project is properly and critically evaluated (technical concurrence, accurate cost estimate, justified strategically, alternatives considered, financially viable) and formally approved prior to committing to any type of expenditure. The large majority of projects will already have been preliminarily approved as part of the Current Fiscal Year Budget. However, there may be times when extraordinary circumstances/changing priorities necessitate that a project be completed that has not been included in the Current Fiscal Year Budget. In this case, this form must be completed and fully authorized before any commitments are made. These projects will be noted in the Project Cost Estimate section of the Detailed CBR Form as not being included in the Current Fiscal Year Budget. DETAILED CAPITAL BUDGET REQUEST FORM INSTRUCTIONS Section 1 - Project Details Please provide descriptive title detailing the project such as Lewis Towers First Floor Renovation, the estimated start and end date of the project and the estimated life expectancy (anticipated life of the asset). Also specify the Project Administrators name, department, phone number, and campus location. The Project Administrator will be responsible for managing the project and its costs. Section 2 Project Description and Justification

Include a detailed description of the project and justify the need for the project. The justification should include one or more of the following (as appropriate): A description of how this request aligns with the college or department mission. A description of how this request aligns with the Universitys strategic vision/stated institutional goals. Objectives to be achieved and benefits to be realized from the project. The age, condition, and inadequacies of the existing facilities which prevent the fulfillment of programmatic and operational needs. Consequences of not proceeding with the project. Other alternatives considered that would fulfill the need.

Section 3 Project Cost Estimate Provide the anticipated cost of the project and source of the estimate. Attach a detailed estimate that breaks down the individual project costs such as construction, furniture, equipment, contingency. This can include, but is not limited to, bid proposals, agreements between Loyola and its vendors, blueprints, and signed contracts stating the nature of the work, cash flow estimates, and agreed detailed costs. Facilities related projects should have a Facilities Department Cost Estimate attached. The project should not exceed this estimate. Any proposed expenditure above the cost estimate will require the approval of a Capital Budget Amendment. Please also provide the anticipated timing of the cash flows if the project is going to span multiple years. Section 4 Project Funding Sources Funding relates to the source of cash. If the project is going to be funded by a gift, grant, or endowment fund, please specify the accounting unit and amount of funding. The cash from the gift, grant, or endowment should already be received and available to spend at the time this Detailed CBR is submitted. Section 5 Annual Operating Cost Impact Provide an estimate of the annual impact of this project on the operating budget. For example, detail the increased cost associated with additional staffing that may be needed for a new or expanded program or specify the decreased maintenance and energy cost associated with an energy conservation project. If any additional revenue is to be generated from a new program or service, please include an estimate of this amount as well. Inclusion in this form does not in any way mean that these additional operating costs are included in an individual units operating budget. Any increase in the operating budget must be approved through the normal budgeting process. Section 6 Financial Analysis If the project is revenue generating and/or cost saving in nature and large in scope, financial calculations that show the net present value, internal rate of return, and annual payback may be necessary. For example, a large new system implementation or a new program expansion would require these calculations. They are not required on a mandatory building repair or small renovation to keep buildings up-to-date. These calculations will be done by the University Budgeting & Financial Analysis Department on a project by project basis. Section 7 Authorization Final Authorization must be given before any commitment or spending begins as detailed in section A5 above. Section 8 Finance Use Only This section is reserved for the department of University Budgeting & Financial Analysis to assign accounting units.

D. COST OVERRUNS AND CAPITAL BUDGET AMENDMENT FORMS A Capital Budget Amendment Form must be completed for any project that will exceed its approved amount by 5% or $10k. These Amendments should be filed as soon as the Project Administrator of the project anticipates the overspend situation. A reason for the overspending should be provided as well as what actions are being undertaken to minimize the overspending. An Amendment should also be filed if the timing of the project is going to change significantly and cross several years. The Amendments require the same signature authority as the Detailed CBR Forms (above). There are several cross-checks in place to ensure a project does not exceed its approved amount without an Amendment being filed: Capital Project Administrators review the project expenditures on a monthly basis to ensure that expenditures are inline with the approved amount. University Budgeting & Financial Analysis will review a monthly report from Lawson that details actual spending vs. approved spending and notify management if any overspend situation. They will also notify the Project administrator to ensure that an Amendment is filed and approved before any additional spending takes place. Management is provided with a monthly report that details current year expenditures vs. approved amount.

CAPITAL BUDGET AMENDMENT INSTRUCTIONS Section 1 - Project Details Provide the project name and accounting unit (66xxxx), name of the Project Administrator, and the original approval date of the project. Section 2 - Nature of Change and Cost Details Provide the reason for the change (an amendment to the original project estimate approved or a time extension), the original amount approved, additional amount needed, and new estimated total project cost. If the amendment relates to a time extension that crosses fiscal years, please provide the original scheduled start date and new proposed start date. Section 3 - Reason for Change Provide a reason for the overspending and the actions being taken to minimize the overspending. If related to a time extension, please provide a reason for the early start or delay. Section 4 Authorization Final Authorization must be given before any additional commitment or spending over the original approved amount begins. Amendments are subject to the same approval authority as the Detailed Capital Budget Request Forms described in section A5 above. Section 5 - Finance Use Only This section is reserved for the department of University Budgeting & Financial Analysis to assign accounting units.

E. PROJECT SET-UP AND TRACKING Accounting Set-up in Lawson When the completed Detailed Capital Budget Request Form has been fully authorized per section A5, it should be forwarded to University Budgeting & Financial Analysis. University Budgeting & Financial Analysis will then assign a Capital Project Number (66xxxx) in Lawson Financial Systems and complete an Accounting Unit Upload form, Activity Upload form, and Capital Appropriation Upload form. A copy of the fully authorized project and associated Capital Project Number will be sent to the Project

Administrator. A Capital Account Signature Card should also be sent to the Project Administrator for his/her signature. This card should be forwarded to University Budgeting & Financial Analysis, who will file it with Accounts Payable, where it is used to verify that each invoice charged to the capital project has been approved by the budget administrator. Note: If a capital project is fully or partially funded by another source (e.g. grant), an accounting unit is provided by the requestor. In this case, a copy of the capital project should be sent to the Assistant Controller of Sponsored Program Accounting for verification that the funds have been received before a Capital Project Number has been assigned.