Professional Documents
Culture Documents
Capex Policy
Last Modified: 14/05/2018
Review Date: 31/12/2019
Policy Manager: Chief Commercial Officer
Approval Authority: Vice-Chancellor
1. PURPOSE
This policy is required to provide assurance that capital expenditure incurred by the University
and its subsidiaries is consistent with the strategic directions of the University, demonstrates
prudent investment practices, is planned and evaluated in accordance with authorised
processes, is in compliance with laws and regulations, is committed within funding and
budgetary constraints, is consistent with the oversight and direction of the Capital Asset
Committee of Council, and is consistently monitored and reported across the University and its
subsidiaries.
This policy sets out a formalised process for selection, approval and monitoring of capital
expenditure.
This policy applicable for all operations and activities of the University, its research institutes and
faculties, and its subsidiaries, trusts and joint ventures.
2. DEFINITIONS
Capital Expenditure or CAPEX – capital expenditure includes all items of expenditure for the
purchase, upgrade or construction of physical or intangible assets, where the expenditure has
value beyond the current year. Includes all costs directly attributable to the capital asset,
including purchased and in-house labour, and costs incurred in designing, preparing, building,
commissioning, testing, and purchasing the capital asset, and bringing the capital asset to a
working condition for its intended use. Excludes costs incurred on projects that are unlikely to
be approved or proceed to completion. All items of capital expenditure requiring clarification
will be reviewed by the Finance Director to confirm compliance with the capital expenditure
policy and the accounting policies of the University.
Capital Asset Committee (CAC) – is a committee of the Lincoln University Council whose
terms of reference are primarily focused on the Campus development plans, capital activities
and major capital projects, capital disposals, capital budgeting and funding, integration of
capital plans of subsidiaries, optimization of the overall asset portfolio, and associated risk
assessment and monitoring of major capital projects.
Audit and Risk Management Committee (ARMC) - is a committee of the Lincoln University
Council whose terms of reference are primarily focused on financial reporting and internal
controls, strategic risk management, health and safety and Internal Audit.
3. OUTCOMES
4. POLICY
4.1 Capital expenditure can be undertaken only under the direct or delegated authority of the
Vice- Chancellor, the Council or its delegated authority conveyed by the Council to the
Capital Assets Committee.
4.2 In practice the University maintains effective control of capital expenditure through the
Capital Expenditure Policy Page 2 of 11
Lincoln University is an Open Access university. This policy is licensed under CC-BY 3.0 NZ
following processes:
4.3 All capital expenditure projects greater than $50,000 should include: links to University
strategies; a clear business purpose; a formal options analysis; stakeholder consultation
outcomes or considerations; references to related or consequential capital projects; a “do
nothing” option and risk assessment; and compliance with TEC or Crown requirements.
These may include new business opportunities in teaching or research programmes,
quality and efficiency enhancements, such as plant and equipment upgrades,
replacements or capital expenditure required for statutory compliance.
4.4 All capital expenditure must be aligned to an approved project budget or an approved
“business-as-usual” capex budget which is maintained for a number of business units, or
to a ‘minor and discretionary items’ budget. However, it is recognised that priorities
change and flexibility is required to support an effective capital expenditure policy and
framework.
4.5 Where capital expenditure is unbudgeted, this must be indicated on the capex approval
request and approved as per the Delegations of Authority Policy.
4.6 This policy applies to all capital expenditure, irrespective of funding sources.
4.7 Managers requesting formal approval of capital expenditure are responsible for the
accuracy of information contained in the project details, for ensuring that this policy is
followed and the associated capital approval request forms are completed fully.
4.8 There is no fixed rate of return which automatically qualifies authorisation for capital
expenditure. However, capital expenditure projects should always seek to render returns
in excess of the University’s weighted average cost of capital, currently estimated at 10%
per
annum, unless the primary motivation of the capex project is non-commercial, where
there may be other compelling strategic reasons.
4.9 For every capital project a nominated “Responsible Manager” is to be given specific
responsibility for overall implementation of the project and for securing the project
benefits. They are also responsible for completing the monitoring of the project and the
completion of the post implementation reviews (refer section 8).
4.11 The Chief Commercial Officer, after consultation with the SMG, will confirm the
prioritisation of the capital expenditure budgets and all competing major capital projects,
to ensure appropriate allocation of scarce capital resources, compliance with the
Delegations of Authority policy, and ongoing compliance with the financial priorities set
by the University Council.
4.12 Capital projects that run over more than one financial period will maintain their approval
if that expenditure is within an approved project. The general budget for ‘minor
equipment expenditure’ must be re-approved on an annual basis as part of the annual
budgeting process.
4.13 All capital expenditure projects and approvals which exceed the Vice-Chancellor’s
delegation of authority must be approved by Council. All capital expenditure above this
delegation must be reviewed in advance for content, assumptions, consistency and
reasonableness by the Finance Director, Chief Commercial Officer and Vice-Chancellor,
at least one week prior to the date of distribution of Council papers.
4.14 All capital expenditure projects and approvals that have property or lease implications
must be reviewed in advance for reasonableness by the Finance Director and the
Property Manager. Any requests for extension of existing expenditure leases or signing
of new leases in excess of 12 months duration must be supported by a Discounted Cash
Flow (DCF) calculation.
4.15 Capital expenditure includes all expenditure incurred by the University which is charged
either initially or subsequently to the fixed asset register, whether purchased externally
or generated internally. Guidelines on the distinction between capital expenditure and
repairs and maintenance outlined in Appendix 1.
4.16 Capital expenditure must comply with the accounting policies as outlined in the
University’s Annual Report and as is required for ongoing IFRS compliance. The capex
approval documentation and review process must confirm compliance with these
policies. If in doubt, discuss with the Finance Department.
4.17 Managers and staff who wish to raise a capital expenditure project or who have a need
for capital expenditure can contact the Finance Department or Finance Director for
assistance or guidance to ensure their needs are assessed and met, efficiently and
effectively.
For purposes of recording the capital expenditure in the FAR, all capital expenditure is to be
classified as per the guidance in Appendix 2.
6.1 For all capital expenditure which is not a property lease in 5.1 to 5.5 the appropriate capital
expenditure form should be used as follows:
Capital Expenditure – below $50k
6.1.1 Capital expenditures greater than $250,000 (which require VC or Council approval)
require a more comprehensive business case aligned with current approved strategy,
and should include other supporting documentation such as expert opinions and
evaluations, procurement competitive tendering processes and strategies, and financial
evaluations (discounted cash flows (DCF) or net present values or IRR’s as appropriate).
Financial models prepared should be incremental business based models.
6.1.2 For large infrastructure projects of greater than $2,000,000, which require Council
approval, the business case approval documentation may require external quality
assurance or peer reviews in addition to expert advice and reports as part of the capital
project due diligence and approval processes.
6.2.1 Property leases that require to be treated as operating leases for accounting purposes
must comply with the Delegations of Authority policy applicable for operating
expenditures, with lease costs treated as an operating expense, through the statement
of revenue and expense. The sum of the minimum lease payments will determine the
level of documentation and approval required. As a minimum the proposed lease
Capital Expenditure Policy Page 5 of 11
Lincoln University is an Open Access university. This policy is licensed under CC-BY 3.0 NZ
agreement and a cost benefit justification for lease vs buy should be provided.
6.2.2 Property leases that require to be treated as finance leases/capital purchases and
capitalised on the balance sheet, must follow the documentation and approvals per 6.1
above.
6.2.3 Rent reviews and extensions of existing capitalised leases must also follow the policy
guidance per 6.1 above, with the sum of the minimum lease payments determining the
level of documentation and approvals required.
6.2.4 The pending change in the accounting standards for property leases needs to be
carefully considered. This capex policy document will be reviewed and updated when
pending changes to leasing accounting standards are clarified or pronounced.
6.3 For all capital expenditure projects requiring the Council’s approval, the business case and
supporting documentation must include an assessment of the “whole of life” costs and
considerations in support of the evaluation and approval process.
7.1 All approved Capital Expenditure projects must be appropriately monitored to ensure
compliance with policy and prior approvals.
7.2 Where actual capital expenditure for a Council approved project exceeds or is likely to
exceed the approved capital budget, the Responsible Manager must, as soon as
possible but no later than 3 months after becoming aware of such likely or actual overrun,
prepare a paper for the Capital Assets Committee requesting approval by Council.
7.3 Where capital expenditure for all other approved projects exceeds or is likely to exceed
the approved budget, the Responsible Manager must as soon as possible but no later
than 3 months after becoming aware of such likely or actual overrun, update the project
approval form and resubmit such for approval as required by the policy for Delegations
of Authority by the Vice- Chancellor.
8.1 For all building projects, and other projects as considered appropriate, within 3 months
of the end of a capital expenditure project or of bringing the asset into use, the
Responsible Manager of the capex project must ensure a Capex Project Close-out
Report is completed.
8.2 The primary purpose of the Close-out Report is to inform all stakeholders that the asset
is now in use, that depreciation of the asset can commence, and also informs accounting
of the appropriate asset classifications to apply the appropriate depreciation rates to.
9.1 All approved capital expenditures of greater than $100,000 are subject to a post
implementation review at 12 and 24 months subsequent to completion, implementation
or the date of bringing the asset into use.
9.2 The purpose of the review is to demonstrate good governance regarding effective capital
9.3 The post implementation review report must provide feedback on the investment
performance compared to the plan presented for approval, and must report on the actual
capital expenditure incurred compared to the approval capital expenditure budget.
9.4 It is the responsibility of the Business Unit Manager to ensure a post implementation
review is completed and a report prepared for review by SMG.
9.6 All capital expenditure forms and supporting documentation, investment plans and other
due diligence reviews are to be provided to and kept on file by Finance Department,
under the direct responsibility of the Fixed Assets Accountant and Finance Director.
10.1 All fixed asset disposals must be accompanied by an approved fixed assets
disposals/transfer form in accordance with the policy for Delegations of Authority by the
Vice-Chancellor (See links to form below). All fixed asset disposals should be promptly
and accurately updated to the FAR to ensure accurate asset records are maintained for
monthly and annual reporting and accurate calculation of depreciation expenses.
10.2 Failure to complete asset disposal/transfer forms in a timely manner will result in an
overstatement of depreciation expenses and inaccurate asset records.
10.3 Disposal of capital items is specifically controlled under S192(4)(a) Education Act 1989.
• Land and Buildings.
All sales, disposals or demolitions of Lincoln owned land and buildings (or interests
in land and buildings) irrespective of value must have prior approval of the
Secretary of Education.
• Plant and Equipment.
All sales or disposals of plant and equipment above a certain dollar value limit
must have prior approval of the Secretary of Education. The disposal
threshold is determined annually from the most current audited accounts. The
current threshold for Lincoln University is $200k per asset item.
10.4 TEC guidance on asset disposal – please refer to the following links
http://www.tec.govt.nz/teo/working-with-teos/tei/asset-management-teis/
http://www.tec.govt.nz/teo/working-with-teos/tei/asset-management-teis/sale-plant-
equipment-financial-assets/
11.1 Internal transfers of fixed assets include all situations where fixed assets are
transferred within business units or wholly owned subsidiaries of the University. All
11.2 The Fixed Asset Disposals/Transfers form should be completed for all internal
transfers of fixed assets. See forms links below.
11.3 The Fixed Asset Disposals/Transfer form should be completed by the despatching
Business Unit Manager and approved by the receiving Business Unit Manager as
indicated.
11.4 Once approved, the Fixed Asset Disposals/Transfer form should be forwarded to
the Fixed Assets Accountant in the Finance Department, who has responsibility
for updating the fixed asset register and relevant accounts.
12. SUBSIDIARIES
While subsidiaries of Lincoln University are governed by separate boards of directors with
separate policies for delegation of authority and procurement, management and staff of
the subsidiaries are expected to comply with the objectives of this Capex policy that ensure
effective documentation, due diligence, record keeping and approval processes for capital
expenditures by the subsidiaries.
13. RESPONSIBILITIES
Final approval for this policy must be given by the Vice-Chancellor, after consultation with
the Senior Management Group. Approval will be notified to the policy manager by the
Chief Commercial Officer.
This policy must comply with and makes reference to the following policies and forms, all
of which are available on the Lincoln HUB:
Delegations of Authority by the Vice-Chancellor
Capital Expenditure Approval Form (<$50,000)
Capital Expenditure Approval Form (>$50,000)
Fixed Assets Disposal/Transfer Form
For any support or information please contact the Fixed Assets Accountant or the Finance
Director in the Finance Department.
Revision Log
Date Amendments
25 March 2018 Policy drafted and amended
14 May 2018 Consultation concluded and feedback reviewed with final
policy changes completed
Capital Expenditure All direct costs incurred in the purchase, construction, delivery, replacement
or major refurbishment of the asset, including all costs necessary to
bringing the asset to a working condition for its intended use.
Includes all costs directly attributable to the capital asset, including
purchased and in-house labour, and costs incurred in designing, preparing,
building, commissioning, testing, and purchasing the capital asset.
Excludes feasibility and other costs incurred prior to formal approval of the
capital project or capital expenditure, and costs incurred on a capital project
that is unlikely to be approved or proceed to completion.
Capital expenditure must be capitalised in the fixed assets register.
The expected useful life of the asset must be greater than one year,
otherwise the costs will be expensed as an operating expense.
Where the expense is less than $2,000, the purchase can be treated as an
operating expense through the statement of revenue and expense, which is
subject to the Delegation of Authority approval limits and processes
applicable for operating expenditure. If the expense is to be accounted for
as a capital expense and processed to the fixed assets register, then all
policies applicable for capital expenditure need to be adhered to.
Where a single capital expenditure project contains several items which
individually fall below the threshold but collectively are more than $2,000,
then the items require capitalisation and are subject to depreciation.
Plant and Plant and equipment which is not part of a Vehicles, scientific
Equipment property assets. Items which can moved equipment, office
and operated independently of each other. equipment, farm
Includes the following: equipment
Plant non-Motorised – capital expenditure on
plant and equipment that is not self-propelled
or motorised.
Intangible Assets Assets which have value beyond the current Software licenses,
year, and which have no physical form. software development
Examples include spend on brand names, and installation costs,
trademarks or patents, eBooks, IT software goodwill
licenses or systems development
expenditures.
Leased Assets Any capital asset which is subject to a lease Vehicles, office
agreement. Includes all property leases equipment, property
entered into by the University and its
subsidiaries and which need to be assessed
for capitalisation as required in terms of the
prevailing IFRS or New Zealand accounting
standards
Minor Business Unit Managers may approve items Equipment
equipment <$2k in value in line with the Delegations of
expenditures Authority policy for applicable areas of
operating expenditures. Capitalisation is
optional at the discretion of BU’s.