2 0 1 4 F O A / P SS O A C S U B u s i n e s s C o n f e r e n c e 12 0 1 4 F O A / P SS O A C S U B u s i n e s s C o n f e r e n c e

Bond Financed Records Retention

Rosa H Renaud, Financing & TreasuryJean Gill, Financial Services Accounting

Lily Wang, Management & Accounting Practices

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AgendaBond Financed ProjectsIRS RequirementsCSU PolicyImplementationIRS Audit ExampleCampus perspectivesReference Material

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Bond Financed ProjectsGenerally, the CSU has projects funded by tax-exempt financings under:

General Obligation Bonds; State Lease Revenue Public Works Board Bonds; Systemwide Revenue Bonds; Commercial Paper; Auxiliary Organizations.

Other funding sources: Campus program reserve contributions Third party contributions.

The IRS requires bond issuers to have adequate documentation to substantiate eligibility of tax-exempt bond status for the life of the bonds, approximate 35 years. Therefore, all funding source records that contribute to a tax-exempt facility must be retained for 35 years.

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Bond Financed ProjectsThe CSU Trustees have tax-exempt bond

obligations, totaling over $3 billion for SRB; and an additional $1 billion for State Public Works Board bonds, auxiliary standalone bonds, and commercial paper.

Additionally, the State of California has General Obligation Bonds in the $100’s millions tied to the CSU.

Currently, there are hundreds of CSU projects, both State and Nonstate, that have existing tax-exempt bond debt obligations.

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IRS Requirements

We must be able to demonstrate:How the money was spent.How the building has been used.

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IRS RequirementsThere are two main areas that affect our tax-

exempt bonds:Private Activity Use Limitations - generally not

exceeding 10%; (Note: this was the focus of other presentation).

Record Retention – for the life of the bonds plus three years. CSU projects are many times funded over a 2-3 year window with multiple financings. As such, the CSU policy is for the life of the bonds plus 5 years.

Generally, the record retention requirement is for 35 years.

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IRS Requirements – Records RetentionGeneral purpose is to keep good records in

order to have documentation demonstrating CSU:Has spent bond proceeds in accordance to a

plan of an eligible project;Uses the facility within the requirements of

Private Use limitations. (For Mixed-Use projects, this is particularly important in order to track expenditures, in writing, during the life of the bonds/facility.)

Is consistent in allocating funding between tax analysis and private use.

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IRS Requirements – Records RetentionExamples at different stages with the project:

Project Development – Campuses fill out a Private use Checklist form.

Financing – F&T documents tax and bond analysis; Campuses fill out a Preliminary Allocation of Bond Proceeds Form; a Final Project Budget (2-7 form) is memorialized by the campus and CO CPDC department. Board of Trustee agenda items document financing plan.

Commercial Paper Issuance – IRS requires an annual report documenting that CSU has evaluated private use.

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IRS Requirements – Records RetentionAt different stages with the project (cont’d):

Bond Issuance – financing team analysis; bond transcripts; Official Statements; Tax Certificates, …

Completion of Facility – Final Allocation of Bond Proceeds form by campus to F&T.

Annual CPDC Memo – Tax Compliance, Custodial, Space and Facilities Reporting.

Usage of Facility – campus documents contracts, such as leases, grants, research, and space usage. Note: Federal grants are considered Private Use.

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CSU PolicyExecutive Order 103111 Record Retention Schedules

Retention periods vary from 120 days to “permanently”.

Review for compliance annually.

Personnel/Payroll FiscalEnvironmental Health & Safety

Student Records

Facilities University Police

University Advancement Academic Personnel

Curriculum & Accreditation

Research & Sponsored Programs

Institutional Records

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CSU Policy (cont’d)What are “Fiscal Records?”

Fiscal Records - Items typically generated by departments such as Accounts Payable; Accounting; Procurement.

Includes records such as vendor invoices; general ledgers; contracts and leases.

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CSU Policy (cont’d)Rules for Fiscal Records:

If funding source is bonds, keep records for life of the bond (as seen in earlier slide).

If funding source is a grant, keep records for 3 years after submission of the Final Report (about 8-10 years), EXCEPT FOR grants for scientific research in a tax exempt facility, then agreements must be kept for 35 years.

For all other funding sources, keep records for 4 years.

May retain in either hardcopy or electronic format.Must be maintained in a readable format.

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Implementation OptionsOptions to accommodate different requirements…1. Keep all data to the longest retention

requirement (out of compliance)2. Purge data as retention period expires.

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Implementation ChallengesWhile Option 2 may seem like the obvious choice, it is difficult to accomplish without negative consequences.Data integrity issue

Extracting data from the GL (original book of records) causes the data to be incomplete, and may create an out of balance.

Impact the accuracy of data warehouse reporting

Time and moneyCostly to identify and extract data

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Implementation RecommendationAlthough Option 1 is not the optimum solution as it does not purge data with shorter retention years, it meets the IRS requirement for tax-exempt bonds.

The litigation risks and exposure to public records being available diminishes with earlier years.

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Implementation Recommendation (cont’d)This topic has been well discussed and will continue to be discussed among various constituents at the CO to seek better options and investigate industry solutions. CMSFinancial ServicesGeneral CounselInformation SecuritySystemwide HR

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Implementation Recommendation (cont’d)

With ongoing Oracle upgrades, at one point, legacy data may become incompatible with the latest version. CMS is exploring the option of archiving legacy data (pre-CFS) to make it available for retrieval.

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IRS Audit ExampleIn 2011, the IRS audited the Systemwide

Revenue Bond program, Series 2005A and 2005B.

It involved 20 “new money” projects built in the 2004-2006 timeframe and two prior bond refundings, which had 15 projects funded and built between 1983 and 1999.

A variety of project types.Three campuses had in person visits by the

IRS agent.We had a favorable outcome but had many

learning lessons given weaknesses.

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Campus PerspectivesComments from campuses involved with the

auditsSan DiegoSacramento

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Reference Materialhttp://calstate.edu/ft/taxexemptbonds

CPDC Memo Attachment F – Record Retention Checklist

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CPDC Memo – Attachment F – Record Retention ChecklistItem Record Records

Management1. Leases to third parties of space in

facility, for example food sales, book shops, gift shops, banking services, cell phones, …

Campus

2. Leases of athletic or residential facilities for conferences or summer use or use by private entities, including non-profits, in their trade or businesses.

Campus

3. Franchise or Vendor Contracts for operations.

Campuses

4. Management or Service Contracts (dining services, management contracts) involved in the control or operation of any substantial or distinct portion. Do not include contracts for incidentals.

Campuses

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CPDC Memo – Attachment F – Record Retention ChecklistItem Record Records

Management5. Research projects sponsored by

external entities, including Federal agencies (NIH, NSF, DOD, etc.), non-profit foundations, and for-profit industry. Include copies of the grant, contract or agreement, license rights to IP, etc.

Campus

6. Research equipment provided by an industry research sponsor on loan or provided exclusively for purposes of research funded by the sponsor.

Campus

7. Joint purchasing or shared-service arrangements or agreements with a third party, including cooperatives.

Campus

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CPDC Memo – Attachment F – Record Retention ChecklistItem Record Records

Management8. Invoices and supporting

documentation for all project expenditures.

Campus

9. Requisitions & Reconciliations Campus10. Construction Contracts &

AgreementsCampus

11. Schedule of Values Campus12. Completion Certificate Campus13. GO & LRB State Budget

AppropriationsChancellor’s Office (CPDC)

14. Bond Cash Flows and Allocation of Bond Proceeds forms

Campus and Chancellor’s Office (F&T)

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CPDC Memo – Attachment F – Record Retention ChecklistItem Records Records

Management15. Board of Trustees Agendas and

ResolutionsChancellor’s Office (CPDC and F&T)

16. Bond (and CP) Issuance Transcripts

Chancellor’s Office (F&T)

17. Cost Issuance Schedule Chancellor’s Office (F&T)