Systems and Procedures
A Division of The Office of Budget and Finance
A Division of The Office of Budget and Finance
This procedure defines The Pennsylvania State University ("University" or "PSU") requirements for a fabrication of property or equipment in connection with sponsored projects and PSU internal projects, as of the effective date of this procedure. The intent of the procedure is to provide guidance to determine whether fabrication expenditures will, or will not, result in the application of Finance and Administrative (F&A) and Applied Research Lab (ARL) Internal Overhead and is not for other purposes, (e.g., accounting for capital assets (see Procedure CR2019 Accounting for Capital and Non-Capital Property (Equipment and Facilities)) or managing of government property) and it does not override any award terms, regulations, statutes, etc. Procedure CR2055 Preacquisition Screening of Federally Funded Property does not apply to property being fabricated as each is a unique, one-of-a-kind item.
Contractual Deliverable - A tangible item to be delivered to the sponsor that is specifically identified in the delivery schedule of a contractual agreement between PSU and the sponsor. Title of the item(s) delivered will be transferred to, and accepted by, the sponsor via completion of the applicable documentation. (Example: for Federal Agreements, the item(s) is/are accepted by the sponsor's signature on a DD250 or DD1149 form.)
Fabrication - A fabrication is the creation of an individually separate and distinct item, assembled by PSU and/or subcontractors from individual parts or components. The completed fabrication will not be part of a leasehold or capital building improvement. The item has a total per unit acquisition cost which equals or exceeds $5,000.
Fabrication Expenditures: Uniform Guidance 2 CFR 200.2 defines acquisition costs as:
"The cost of the asset including the cost to ready the asset for its intended use. Acquisition cost for property, for example, means the net invoice price of the property, including the cost of any modifications, attachments, accessories, or auxiliary apparatus necessary to make it usable for the purpose for which it is acquired. Acquisition costs for software includes those development costs capitalized in accordance with generally accepted accounting principles (GAAP). Ancillary charges, such as taxes, duty, protective in transit insurance, freight, and installation may be included in or excluded from the acquisition cost in accordance with the University's regular accounting practices."
PSU has defined the following expenditures integral to the completed "fabrication. Fabrication expenditures INCLUDE:
Fabrication expenditures DO NOT INCLUDE (NOT considered integral to the completed fabrication):
NOTE: In accordance with PSU Policy RA70 Property & Equipment) the Principal Investigator (PI) is responsible for identifying fabrication expenditures during and after the acquisition of the fabricated item, including initial estimates of cost and useful life criteria used in the Fabrication Expenditure Questionnaire during the pre-award proposal process and/or prior to the acquisition of the fabricated item, and subsequent reporting. The PI must ensure no fabrication costs are incurred prior to approval.
Fabrication Expenditure Questionnaire (FEQ) - Form completed to capture the characteristics of a fabrication, including the anticipated fabrication expenditures to be incurred, in order to determine the appropriate categorization of the fabrication.
Fabrication Types - A general ledger account assigned to each item based on various characteristics of the item(s) to be assembled or fabricated, such as the aggregate fabrication expenditures per unit, sponsored or PSU Internal Project, and/or Useful Life.
Fabrication Types include:
PSU Internal Project: - Internally-funded activities for which there is no funding received by the University from an external sponsor (e.g. Fabrication Capital Project, Indirect Fabrication, or Other Internally Funded Non-Capital Projects)
Sponsored Project: - Externally-funded activities in which a formal written agreement (e.g. Grant, Contract, or Cooperative Agreement) is entered into by the University and by the sponsor. Includes PSU Internal Matching Funds.
Upgrades to Existing Equipment or Capital Assets: - An upgrade is defined as significantly enhancing the functional capabilities or extending the useful life of an item. Previously expended costs are not considered part of the material or fabrication acquisition cost of the upgrade. Upgrades are evaluated for useful life and acquisition costs unique to the upgrade.
Useful Life - Useful life is the period of time in which an item is expected to contribute to research, PSU operations, education, etc. Useful life may be a year or less only when, within one year after placed into service, the fabrication is cannibalized, destroyed, or consumed. Useful life criteria are necessary to consistently determine the period of benefits for internally-used items and contractual deliverables. The following indicators provide criteria of useful life:
Items are consumed when the item loses identity, such as altering physical characteristics when put into use. Useful life is an expectation made at initial identification of a new item (initial or revised proposal, request for Government prior approval for equipment not identified in a contract, etc.). Future changes to useful life do not result in a change to the initial classification of the item.
Proposals must define and describe the proposed useful life determination of greater than or less than one (1) year and reasoning for the useful life determination when an item is expected to be consumed, destroyed, or cannibalized within one (1) year. When an item is expected at time of proposal to have potential future use (e.g. anticipated to be stored for one (1) year or more), then that item meets the criteria for greater than one (1) year of useful life.
For items proposed for reimbursement on federal awards, the government has the ability to accept/change the greater than or less than one (1) year useful life determination for items listed in the proposal or during performance for items not originally proposed. The University will propose a useful life of an item but does not make the final decision on useful life of an item which is being fully reimbursed by the federal government. The University will adjust the budget classification of the item at time of award based upon federal government determination on the useful life and include a unique identifier for all fabrications as part of the proposal. The University shall ensure all fabrications are proposed in a manner consistent with the cost principles and that does not override any award terms, regulations, statutes, etc.
The University will make adjusting entries between general ledger accounts when costing is inconsistent with the classification of the item as provided in the sponsored award.
Any exceptions to this procedure must be approved by the Senior Vice President of Research, and either the Associate Vice President for Budget and Finance or the Executive Vice President and Provost.
NOTE: When completing the FEQ, if there is insufficient room on the expenditures table to record all expenditures, the PI may substitute a spreadsheet detailing the complete information. In this circumstance, the PI may attach the complete spreadsheet to the FEQ and not complete the table portion of the FEQ. All other information on the FEQ must be completed.
Violation of a financial policy and/or procedure should be reported to your supervisor, unit manager, your Human Resources representative, and/or office responsible for the policy. Where those resources are inadequate, you may choose to make an anonymous report through the Penn State University hot line by calling 1-800-560-1637.
The Financial Officer is responsible for ensuring that procedures pertaining to the accountability and safeguarding of all cash receipts, cash funds, and other assets are established and followed in accordance with approved University policies and procedures. Regular audits relating to advances, cash, travel, equipment accountability, and other expenditures provide a means to protect University assets. The Financial Officer is responsible for working with Internal Audit when audits are being performed in the administrative area. Audits relating to sponsored activities or other audits performed by external auditors may also be performed. The Financial Officer would also be responsible for working with the external auditor and/or a central university officer related to these procedures.
University Records retention must be managed in accordance with Policy AD35 University Archives and Records Management, and retention schedules approved by the Records Management Advisory Committee, the Office of General Counsel, and Senior Vice President and Chief of Staff. These records retention schedules are derived from - or based upon - federal, state, and local statutes or regulations, University Policy, industry standards, and business needs. All University Records must be maintained in such a manner to provide ease of access, establish a suitable audit trail for all transactions, and to be reviewed prior to disposition.
Upon completion of the retention period, University Records must be disposed of via secure destruction or transfer to University Archives, unless an exception to the disposition process set forth below applies. If the disposition method for University Records states "Review by Archives" on the records retention schedule, the employees responsible for those records should consult the University Archivist for a final determination of disposition. For University Records that must be securely destroyed, units may arrange for shredding services by either contacting the Blue/White Shredding Program or the Inactive Records Center.
Exceptions to the disposition process are as follows:
To safeguard the privacy of individuals, records that contain Personally Identifiable Information (PII). as defined in University Policy AD53 Privacy Policy, or student records, as defined in University Policy AD11 Confidentiality of Student Records, must be destroyed beyond recovery. For additional information regarding privacy and the protection of an individual's personal information, see Policy AD53 Privacy Policy.
Additional questions may be directed to the Office of Records Management.
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For questions, additional detail, or to request changes to this procedure, please contact Property Inventory.
January 31, 2022