I. Date of Initiation/Revision

January 1, 2004

II. Policy Classification

Senior VP Administration and Finance & CFO delegated to Office of Treasury

III. Policy Summary

This policy establishes the process of all requisitions for purchase of equipment to be funded by a lease.

IV. Related Policies

Purchasing via Lease

V. Delegation of Authority

The Office of the Senior Vice President for Administration and Finance and CFO has delegated authority for this process to the Office of Treasury.

VI. Policy Statement

The purpose of this process is to identify equipment and related purchases that can be specifically identified for purchase and externally financed with a lender other than long term bonds.

Capital equipment is generally acquired by outright purchase. On occasion, circumstances may require a lease on equipment to support the business need for the equipment. In this case, either a lease or a lease/purchase may be used to acquire the capital equipment. The absence of current funding does not constitute a good reason to choose a lease over a purchase option.

Department of Treasury may decide to lease equipment when leasing demonstrates the most sound business decision for use of the available financial resources. A lease analysis must be prepared which reflects quantitative analysis and qualitative factors for consideration of the lease versus buy decision. The advantages of leasing should be considered in the lease analysis:

  • Transfer of the risk of loss and resale/disposal to the lessor
  • Transfer of the risk of technological obsolescence to the lessor
  • Preserves capital and avoids large cash outlays
  • Bundles one-time costs with ease
  • Matches the cost with the useful life of the equipment
  • May offer other value-added life of the equipment
  • May provide operating flexibility to meet changing conditions and demands

VII. Definitions

  • Capital Lease – is a contract where the lessee assumes all risk of ownership and the equipment is recorded as an asset and the lease is recorded as a debt/liability.
  • Contract – is an equipment agreement between the lessee and the lessor.
  • Lessee – University of Rochester
  • Lessor – Financial institution or lender granting temporary ownership of the equipment through the contract.
  • Operating lease – is a contract which is written for considerably less than the life of the equipment and ownership is not attainted.
  • Purchase Order – PO, document issued by Purchasing to the vendor from the requisition (s) that was prepared by the department administrators that identifies the equipment or items to be purchased. The PO will include the lease company name, address, telephone number and lease schedule number.
  • Requisition – document prepared by the department administrators that details the desired vendor and equipment details relating to the desired purchase.
  • Subledger subcode for lease payments to lessor will be 221x where x is equal to the sub ledger number.
  • Cost - includes cost plus the cost of modifications, attachments or the apparatus necessary to make it usable for the purpose for which it is acquired. Taxes, duty, protective-in transit insurance, freight and installation cost are also to be included in the final cost of the equipment.
  • Long-term Bonds – These bonds have a duration of more than six years or an average effective maturity of more than 10 years. (primary focus on corporate and investment – grade bonds)

VIII. Responsibilities

The Office of the Treasury, Budget Office and the departmental business administrators will work together to determine appropriate level of financing required. In most cases, the amount will have been determined through annual budgetary process.

The business administrators within the departments who have accountability for purchasing of capital equipment will assure that purchases paid by lease funds accommodate the intended goal established during lease negotiation. The business administrator will also monitor the purchase requisitions to assure effective processing of the invoices. In addition, the business administrator will reconcile and monitor the purchase requisitions issued against the lease to the available lease funds schedule prepared by the lease company. It is the responsibility of the department administrators to assure there are funds available for the purchase requisitions that are issued.

  1. Procedures

Step 1: Verify Leasing or Purchasing

[Process]

Upon identification of external funding requirements, departmental administrators will confirm approval of project as an approval capital project by the appropriate approval authority, ie. Board of Trustees, MC Board of Trustees, etc. After approval is confirmed, departmental administrators will prepare appropriate documentation to include approval date by the Board, detailed equipment listing to include vendors, make and model of equipment, as well as any soft costs that may be incurred for installation of the equipment.

1.1 Each departmental administrator will be responsible for preparing a Purchase Requisition (PR), including equipment details.

1.2 Departmental administrator will put estimated cost into “lease vs. buy” model, and prints the result with the PR for the expenditure approval.

1.3 Following is the detail requirement for the PR.

Each department will prepare the requisition with the following information reflected on the requisition:

  • Provide detailed information on items to be purchased
  • Use 0-00000-0000 as the account number
  • In bottom right comer, put “L” on the New P.O.# line
  • Identify the name of project/item number as appears on documentation used to establish financing on the requisition for internal reporting purpose.
  • Include lessee name and address on each requisition if known
  • Provide name/e-mail of contact person who will receive shipment
  • Identify the individual who is authorized for invoice approval on the requisition
  • Request the make on the requisition that model and serial numbers of the equipment be included in the invoice.
  • Note that shipping be identified separately on the requisition.

Retain a copy of the purchase order for the department/unit preparing the purchase order.

1.4. Department Administrators submit the PR and discuss details with Treasury.

1.5. Treasury will prepare a Request for Proposal (RFP) for lease bids.

1.6 If the Purchase amount is greater than $1 million, Treasury will prepare documents and send them to Board of Trustee for approval.

1.7 If the purchase amount is less than $1 million, go to the next process.

1.8. Treasury will further analyze responses to RFP and search funding.

1.9. Then, Treasury will communicate with Budget office to confirm appropriate amounts and lease options.

1.10. Upon both Treasury and Budget Office approval, Treasury will sign lease commitment. Funds will be available within two weeks of lease commitment.

Step 2: Leasing / Purchase Process

[Process]

2.1Treasury will forward the requisition, along with the funding decision to the Purchasing Department. However, if a specific departmental administrator is assigned to the project, this individual will be given authority to sign the purchase requisition (s) with the lease company information identified on the requisition (s). The “Bill To” will indicate the leasing company, including the lease schedule number.

2.2Purchasing will return a copy of purchase order to the department/unit. A copy is forwarded to the business administrator responsible for lease management and the lease company.

This individual will check to make sure all requirements on the requisition (refer to requisition requirements above) are correctly stated on the purchase order.

This individual will also maintain a copy and all related documentation for future reference.

2.3Once the PO has been verified by the department, the equipment will be ordered and subsequently received by UR.

2.4(Required) The invoice will be mailed directly to the lessor. The lessor will then forward the invoice to UR for approval. Departmental approval and approval by the Treasury Office are required before payment will be made to the vendor. The Treasury Office will return the approved invoice to the bank.

2.5If the invoices are mailed directly to UR, the department administrator must verify that all the requirements on the purchase order (refer to requisition requirements above) are correctly adhered to on the invoice. If not, the vendor must issue a corrected invoice. Upon receipt of an accurate invoice, the department administrator must approve payment, and forward to the Treasury Office. The Treasury Office will approve payment and forward to the leasing company (bank).

2.6Upon receipt of the approved and signed invoices, the leasing company will prepare a Certificate of Equipment Acceptance (CEA). The CEA will be sent to and signed by Treasury Office. Copies of all CEA documents will be sent to department business managers and accounting/finance, if appropriate, for documentation. A copy of the leasing company summary of invoice payments to vendors will be forwarded to department business managers on a periodic basis.

X. Policy Review

The leasing policy will be reviewed periodically by the Offices of Purchasing and Treasury. The Office of Purchasing will receive suggestions for review and coordinate the review of the policy with Treasury.

Use of Section for Policy, Procedure and Process

SectionPolicyProcedure/Process

Date of Initiation/Revisionyesyes

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