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POLICY MANUAL PERSONNEL MANAGEMENT AUTHORIZATION FOR EXPENDITURESPROCEDURES FOR APPROVAL AND CONTROL

Policy No.

600:211

Approved By: JGB Effective Date: 04/01/90 Revision Date: 06/29/09 Page 1 of 6

POLICY: The status of all approved capital and maintenance expenditures will be monitored and reviewed monthly. Project expenditures will not be permitted to exceed the authorization except as outlined in this procedure. The authorization shall exclude capitalized interest. A separate authorization shall be budgeted for capitalized interest and all capitalized interest shall be accumulated under that authorization. A separate detailed capitalized interest schedule shall be maintained to identify how much capitalized interest is allocable to each major capital project. As major capital projects are completed, capitalized interest will be transferred from the capitalized interest schedule to the capital project. Should this transfer of capitalized interest cause a project to exceed its authorization, a Supplemental AFE will not be required. I. Initiating the Project A. Commitments may commence when the following conditions are met: 1. The project has been approved by the Board of Directors (a) via the budgeting process or through special authorization during the year if not provided for in the budget and (b) by subsequent approval for budgeted items greater than or equal to $1 million. 2. The project has been approved by the President from the Corporate Contingency Fund, which may be used for unbudgeted capital expenditures. Status of the authorized Corporate Contingency Fund along with any expenditures or commitments in excess of $250,000 will be reported quarterly to the Board. Any single Corporate Contingency commitment in excess of $500,000 will require the approval of the Board. In addition thereto, any Corporate Contingency commitment in excess of $250,000 and not greater than $500,000 shall require the approval of the Board Chairman. 3. After having received Board approval, the expenditure will require the following managerial reviews and approvals:

NATIONAL COOPERATIVE REFINERY ASSOCIATION

POLICY MANUAL PERSONNEL MANAGEMENT AUTHORIZATION FOR EXPENDITURESPROCEDURES FOR APPROVAL AND CONTROL

Policy No.

600:211

Approved By: JGB Effective Date: 04/01/90 Revision Date: 06/29/09

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Project Manager to be charged with the responsibility of overseeing the project and ensuring the expenditures do not exceed the authorization. Manager, Information Technology to approve computer hardware and software expenditures when applicable. Division Vice President for divisional approval. Controller to verify that the project has received budget approval, that the projected cost is in line with the budget-approved cost, and to verify that the expenditure has been properly classified as capital or expense. Director-Economics and Planning to review economic justification when applicable. Vice President-Finance to arrange necessary financing when applicable and to verify special or subsequent Board authorization when required. President for final approval. B. To provide a general basis, but not necessarily an absolute, the following definitions will be used as a guideline in determining the characteristic of an expenditure. A Capital item is one that can involve a small or large expenditure. It must have a useful life of several years if new, or if a modification, must extend the useful life of the original asset. A normal Maintenance item is one that involves a relatively small expenditure, recurring in nature, and does not extend the previous useful life of the original asset. An extraordinary Maintenance item is one that involves a relatively large expenditure, is not recurring in nature, but does not extend the previous useful life of the original asset.

NATIONAL COOPERATIVE REFINERY ASSOCIATION

POLICY MANUAL PERSONNEL MANAGEMENT AUTHORIZATION FOR EXPENDITURESPROCEDURES FOR APPROVAL AND CONTROL

Policy No.

600:211

Approved By: JGB Effective Date: 04/01/90 Revision Date: 06/29/09

Page 3 of 6

C. All Capital projects requiring an expected expenditure of $2,000 or more will be approved through the Authority For Expenditure (AFE) procedure. All Maintenance projects requiring an expected expenditure of $50,000 or more will also be approved through the AFE procedure. A separate schedule shall be attached to the AFE whenever economic justification is considered to be a prerequisite. Capital items requiring less than $2,000 will be classified as operating or general and administrative expense and will not require an AFE. If the expenditure, which requires an AFE, is less then $5,000, the written approval of the President and Vice President of Finance will not be required. D. All AFE's will be given a reference number which will differentiate between a Capital expenditure and a Maintenance (Work Order/WO#) expenditure. E. Miscellaneous items that have been budgeted in mass will also have a reference number assigned and an amount approved in the budgeting process. F. Expenditures that have been approved via the annual budgeting process that have changed accounting status regarding the classification of a Capital expenditure vs. a Maintenance expenditure shall still be regarded as being approved and shall not affect the Corporate Contingency Fund.

NATIONAL COOPERATIVE REFINERY ASSOCIATION

POLICY MANUAL PERSONNEL MANAGEMENT AUTHORIZATION FOR EXPENDITURESPROCEDURES FOR APPROVAL AND CONTROL

Policy No.

600:211

Approved By: JGB Effective Date: 04/01/90 Revision Date: 06/29/09

Page 4 of 6

II.

Monitoring The Expenditures A. A Monthly Project Control report will be issued for all Capital and Maintenance projects which require an AFE. Should the Project Manager desire to monitor the cost of his project even though an AFE may not be required, a reference number will need to be assigned by Refinery Accounting to accumulate and monitor costs. Additionally, a Project Cost Control report will be issued monthly for all Capital and Maintenance projects over $100,000 (including projects that were budgeted for less than $100,000 but have actually exceeded $100,000). This cost control report will graphically compare and track by individual project the Board approved authorized amounts in comparison to the actual expenditures and commitments. Any major revisions in scope or estimated amounts will be reported by the Project Manager to Refinery Accounting and documented on the report. B. If a Capital project is anticipated to exceed or has exceeded its authorized amount by the greater of 10% or $5,000, or if a Maintenance project that has an authorized amount greater than or equal to $50,000 and is anticipated to exceed or has exceeded its authorized amount by the greater of 10% or $5,000, the Project Manager will be required to prepare as soon as possible and have approved by the Division Vice President, Director of Economics and Planning, Vice President-Finance and President a Supplemental AFE which will be attached to the original AFE explaining the reasons for the overrun and/or change in scope. The President shall have authority to approve supplemental authorizations up to $1 Million, provided that such expenditures do not cause NCRA to incur additional debt or require additional capital contributions by NCRAs owners. Supplemental authorizations will be reported to the Board of Directors at the next meeting on Capital projects which exceed their authorizations by $250,000. If a Capital project is anticipated to exceed or has exceeded its authorized amount by more than $1 Million, Board approval shall be required to continue with the project. The Division Vice President and President shall have an obligation to accomplish this in a way that will avoid project interruption or disruption.

NATIONAL COOPERATIVE REFINERY ASSOCIATION

POLICY MANUAL PERSONNEL MANAGEMENT AUTHORIZATION FOR EXPENDITURESPROCEDURES FOR APPROVAL AND CONTROL

Policy No.

600:211

Approved By: JGB Effective Date: 04/01/90 Revision Date: 06/29/09

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C. The Refining Division will provide a monthly written report advising the Refinery Accounting Department as to which AFE's are to be closed out. When projects are completed, the Refinery Accounting Department will attach a summary to the AFE form indicating final costs and amounts which have been allocated to expense or capital accounts. This will allow comparison of final actual costs with the amount which had been approved for the expenditure. If there are any uncommitted funds remaining in an AFE after the project has been completed, they shall not be diverted to another job or project. D. A Divisional AFE and WO report will be issued monthly. This report will track actual expenditures by division and then compare them in total (all divisions) to those which have been approved. III. Disposals and Trade-Ins If a trade-in or other disposition of existing facilities or equipment is involved, a request for authorization to trade-in or dispose of fixed assets will be prepared and approved by the Division Vice President. This authorization will be processed with a related AFE if it is in conjunction with a replacement. Major Capital Projects In the case of major capital projects involving the expenditure of $1 million or more, quarterly status reports will be presented to the Board of Directors by the appropriate Division Vice President regarding these projects. Carry-Forward Projects Every effort shall be made by the Project Managers and Division Vice Presidents to ascertain which jobs will be carried forward into the next fiscal year's budget. Once a project has been authorized and the AFE has been approved, the project shall retain its "authorized status" even though it may be omitted from the carryforward list designated for the following year. The amount that will be expended in the carry-forward year shall not affect the Corporate Contingency Fund unless the total project cost exceeds the approved authorized amount by $250,000.

IV.

V.

NATIONAL COOPERATIVE REFINERY ASSOCIATION

POLICY MANUAL PERSONNEL MANAGEMENT AUTHORIZATION FOR EXPENDITURESPROCEDURES FOR APPROVAL AND CONTROL

Policy No.

600:211

Approved By: JGB Effective Date: 04/01/90 Revision Date: 06/29/09

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VI.

Leasing If leasing is more economical than purchasing, then a "lease vs. buy" analysis shall be attached to the AFE. If it is unknown which method is preferred during the budgeting process, or if the item is to be purchased prior to a sale/leaseback, then the item shall be budgeted as capital. Any fair market value "buyout" option, which occurs at the end of the lease term, should also be provided for as a capital item. The Treasury Department will assist or provide the Project Manager with the analysis regarding these alternatives and also determine the proper classification as to an operating or capital lease should leasing be selected.

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