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POLICIES AND PROCEDURES

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.

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Assets - includes all items, either tangible or intangible, that have the potential to contribute
future economic benefits in the form of inflows of cash or cash equivalents. Includes library
books and serials as defined. Expenditures on assets are included on the reporting entity’s
balance sheet. If the potential or intended realisation is within 12 months, the asset is included
in “current assets”, otherwise it is included with non-current assets. Excludes investments
covered by the Treasury Policy.
DCF – Discounted Cash Flow – a valuation method used to estimate the attractiveness of
an investment or development opportunity. This method uses future free cash flow projections
and discounts them to a present value estimate.
FAR – Fixed Asset Register – the accounting system which records the purchase, sale, transfer
or disposal of all assets over $2,000, for the purposes of monthly and annual reporting,
depreciation calculation, asset management and security.
Library books and serials – includes printed books, serials, electronic books and datasets
which have been acquired with terms of perpetual access.
Minor equipment expenditure – equipment and related expenditure items less than $2,000,
which are not accounted for as capital purchases, but are budgeted, approved and accounted
for as part of operating expenditure.
SMG – Senior Management Group.
Operating Lease – a lease agreement where the lease does not transfer substantially all the
risks and rewards incidental to asset ownership, and as determined by prevailing accounting
policies required for IFRS compliance in New Zealand.
Finance Lease - a lease agreement where the lease does transfer substantially all the risks and
rewards incidental to asset ownership to the University, and as determined by prevailing
accounting policies required for IFRS compliance in New Zealand.
Whole of Life – refers to all costs, benefits and other considerations impacting the full life cycle
of the capital asset, including: (a) design, build, maintain, finance, depreciate and operate; (b)
sell, demolish, replace; and (c) remediation of any environmental issues at the end of the capital
asset’s life.

3. OUTCOMES

This policy seeks to:


Ensure capital expenditure is incurred with appropriate prior due diligence and approval, is
consistent with the strategic objectives, and is undertaken within the funding and budgetary
constraints of the organisation.
Ensure the documentation supporting capital expenditure is consistent with good effective
governance and record-keeping.
Ensure the accounting treatment applied to capital expenditure is consistent with the established
approved accounting policies of the organisation.

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
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following processes:

4.2.1 The annual programme of capital expenditure follows a capital investment


prioritisation model and decision making process, which includes a rigorous
evaluation of competing priorities, projects and business cases, with priority given
to capital expenditure projects best aligned to the strategic priorities of the Lincoln
University Group.
4.2.2 The annual programme of capital expenditure is assessed against the financial
KPI’s and funding constraints of the organisation, as well as other compliance, risk
mitigation and strategic priorities of the organisation, and the resulting annual
capex budget is approved for each new financial year.
4.2.3 Authorisation of each item of capital expenditure is required in line with the
Delegations of Authority policy.
4.2.4 Capital expenditure projects requiring Council approval must be submitted in
advance to the Capital Asset Committee, with a fully documented business case
in line with section 6 for their review, who will recommend either approval or
rejection to Council.
4.2.5 Capital expenditure is effectively monitored on an ongoing basis for
compliance with policy and authorisation limits.

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).

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4.10 All capex spend is required to be reviewed and signed off by the Procurement Manager,
who has oversight of procurement processes, options, suppliers and overall
optimisation of the capital purchases and spend. Additionally, all capex that includes IT
or services and facilities or teaching components requires the review and sign-off by the
appropriate manager (IT – IT Director, services and facilities – Property Manager,
teaching equipment – Director Teaching and Learning).

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.

5. CAPITAL EXPENDITURE CLASSIFICATION

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. CAPITAL EXPENDITURE PROJECT DOCUMENTATION AND APPROVAL LIMITS

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The level of financial analysis, documentation and approvals required in support of capital
expenditures is outlined below. Approvals are as per the Delegations of Authority Policy.

Class of Spending Threshold Documentation Approval


Maximum(*
)
Capital Expenditure <$50k Capital Expenditure Form Level 3 up to
(<$50,000) Approvals as per $10k Level 2 up
Delegations of Authority Policy
to $50k
>$50k Capital Expenditure Form CCO $50k-$250k
(>$50,000) Approvals as indicated VC $250k-$500k
on the form.
Council over
$500k
Property Leases - Sum of Capital Expenditure Forms CCO <$250k
financing minimum lease Approvals as indicated on the VC $250k-$500k
payments forms.
Council over
$500k
Minor Equipment Under $2k Quote / Order Per Conexa and
Expenditure – operating
budgeted within expense
operating delegations
expenditure
(*) Maximum approval limits are derived from and must comply with the policy for Delegations of
Authority by the Vice-Chancellor, and the maximum limits applicable in this policy must be checked
to that policy.

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

Lincoln University Capital Expenditure Capex Approval form

Capital Expenditure – above $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 For classification 5.16, Property Leases:

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
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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. MONITORING AND REPORTING OF CAPITAL EXPENDITURE PROJECTS

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. PROJECT CLOSE-OUT AND REPORTING

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. POST IMPLEMENTATION REVIEWS

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

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expenditure due diligence, approval, implementation processes, and benefits realisation.

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.

9.5 Post implementation review reports for capital projects:


• Greater than $1 million will be reviewed by Internal Audit, with any deficiencies
reported to Capital Asset Committee.
• Between $250k –$1 million may be reviewed by Internal Audit on a sample basis,
with any deficiencies reported to CAC.

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. FIXED ASSET DISPOSALS

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. FIXED ASSET TRANSFERS

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

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other transfers must be treated as a disposal with the above policy applicable.

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.

14. LINKS TO PROCEDURE(S) AND OTHER RESOURCES

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

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APPENDIX 1: CAPITAL VS REPAIRS/MAINTENANCE EXPENDITURE GUIDELINES

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.

Repairs & Includes the following:


Maintenance (i) The cost of maintaining an existing asset in a condition similar to its
Expenditure original condition, including the cost of maintaining its efficient functioning.
(ii) The replacement of a part of an existing asset.
(iii) Direct costs incurred on an asset where the cost is less than
$2,000, and where it has been decided not to capitalise the
expenditure, but treat it as an operating expenditure.

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APPENDIX 2: ASSET DEFINITION GUIDELINES

Asset Category Definition Examples


Property Includes purchase of existing buildings, Buildings, Glasshouses,
construction of new buildings, refurbishment Sheds, Barns, Farm
of existing buildings beyond their original new Developments, Roading,
state, development of new items of Sewer and Water
infrastructure. networks
Includes all parts of the building as follows:

Building Structure – capital expenditure


relating to improvements in building structure.

Building Fit Out – capital expenditure relating


to the process of making interior spaces
suitable for intended uses.

Building Services – capital expenditure


related to installing systems in buildings to
make them comfortable, functional, efficient
and safe.

Building non-Concrete – capital expenditure


on large items not classified as plant and
equipment and not permanent structures.

Building Concrete – capital expenditure


on permanent structures.

Land Capital expenditure relating to purchases of Campus site, farms


land.
Land; developed and undeveloped. Includes
both Crown land and University owned land.

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.

Plant Motorised – capital expenditure on


plant which can be operated by its own
motor or self- propelling system.

Research Equipment – capital expenditure


relating to plant or equipment purchased for
the needs of research.

Teaching Equipment – capital expenditure


required for teaching >$10k must be approved
by the Director of Library Teaching and
Learning.
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Computer Equipment – capital
expenditure relating to the purchase,
installation and commissioning of
equipment for computing, networking
etc.

Motor Vehicles – this category applies to LU


owned motor vehicles provided in accordance
with the University’s personnel and
remuneration policies and vehicles used within
the University. This category applies to service
vehicles, leased vehicles and off road campus
and farm vehicles.

Furniture – capital expenditure relating to the


purchase of furniture for offices, laboratories,
or farms.

Library Books, Books/Serials/Irregular Serials – capital Books, digital serials,


serials and ebooks expenditure on books, serials, irregular ebooks
serials, digital agreements, eBooks or
other reading formats, and excludes serial
costs that do not include perpetual access.

Assets Capital expenditure where the purchasing, Partial completed


under building, construction or project process is not buildings, refurbishments
Constructio yet completed and capital asset is not yet or infrastructural
n ready for its intended use. developments, project
spend, etc.

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.

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