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Label:
Administrative rules adopted by bureaus pursuant to rule making authority (ARB)
Policy category
Policy number
6.09
Purpose
These administrative rules establish minimum standards for subscription-based information technology arrangements (SBITAs) applicable to all City bureaus for recording subscription assets and liabilities in the City’s Enterprise Resource Planning system and reporting in the Annual Comprehensive Financial Report (ACFR). “Minimum standards” includes providing documentation supporting the SBITAs used by The City bureaus with a value outlined by the established thresholds.
Authority
Authority for this administrative rule is established in the City Charter and the City Code. This administrative rule has been approved by the Chief Administrative Officer.
Monitoring
The Accounting Division of the Bureau of Revenue and Financial Services of the Office of Management and Finance (Accounting Division) will monitor bureau SBITAs and assess compliance with the minimum standards of this rule. Identified instances of non-compliance require the development and implementation of a bureau corrective action plan. The Accounting Division will provide assistance to bureaus, if requested, to develop this plan. The Controller will report all significant instances of noncompliance to the Chief Financial Officer (CFO) and City Council.
Definitions
“SBITA,” as defined by GASB Statement No. 96, is a contract that conveys the noncancelable right to use a vendor’s software, alone or in combination with tangible capital assets, as specified in the contract for a period of time in an exchange or exchange-like transaction. “Short-term SBITA” means a SBITA contract that, at inception, has a “maximum possible term” of 12 months (or less), including any knowns options to extend. “Noncancelable right” are the periods reasonably certain to exercised, not including periods where both the City and contractor can terminate without the others permission. Month-to-month, year-to-year, auto renewal periods and holdover periods would not be included. Provisions for non-payment would not impact periods included.
A contract is GASB 96 relevant and will be valuated unless it meets any of the following exceptions:
- Contracts that have a maximum possible term of 12 months or less.
- Contracts that include a combination of software and tangible capital assets that meet the definition of a lease in GASB 87 in which the software portion is insignificant compared to the tangible capital assets (e.g., a leased computer with operating software).
- Contracts that provide a perpetual license to use a vendor’s software (covered by GASB 51).
- Governments providing software and tangible capital assets to other entities for use.
- Public-Public or Public-Private partnerships (covered by GASB 94).
Threshold
The City will capitalize SBITAs valued at $10,000 or greater.
Term
The life and value of the subscription asset and liability should be based on the life of the agreement, including any reasonably certain renewal periods or periods in which it is reasonably certain that options to terminate the agreement will not be exercised. Periods cancelable by both parties will not be included in the term. Contracts with auto renewal periods alone are considered cancelable.
Discount Rate
The Accounting Division will maintain the interest rate to be used.
Subscription Liability
The subscription liability is equal to the present value of:
- Fixed Payments
- Variable payments that depend on an index or a rate, measured using the index or rate as of the commencement of the subscription term
- Variable payments fixed in substance
- Payments for penalties for terminating the SBITA, if the subscription term reflects the City exercising (1) an option to terminate the SBITA or (2) a fiscal funding or cancellation clause
- Subscription contract incentives receivable from vendor
- Any other payments to the vendor associated with the SBITA that are reasonably certain of being required
Remeasurement
The City will remeasure a subscription asset and liability when an amendment results in a change in term or amount over the capitalization threshold of $10,000.
Subscription Asset
Initially value the subscription asset as the sum of the initial subscription liability, payments associated with the SBITA contract made to the SBITA vendor at the commencement of the subscription term, and capitalizable initial implementation costs. A bureau should capture payments before the commencement of the subscription term and capitalizable implementation costs in a separate capital project. No asset will be recorded for terms less than or equal to 12 months.
Amortization
Amortization of the subscription asset will begin once the government has obtained control of the software and the software is available for use, meaning the subscription term begins and the implementation phase is complete. If payments have started but the software is not configured and usable for the City, such payments would be prepayments or implementation costs.
| Stage | Stage Description | Capital - Yes/No |
|---|---|---|
| Preliminary Project Stage | Evaluating alternatives, determining needed technology, and selecting a SBITA vendor. | No |
| Initial Implementation Stage | Ancillary charges necessary to place the subscription asset into service. Should have funding committed, feasibility determined, and service objective clear prior to capitalizing. |
Yes |
| User acceptance testing | Validating operability of software based on contract terms. | Yes |
| End User Training | Training end users of the software | No |
| Operation | Maintenance of the software | No |
|
Additional Implementation Stage – New modules/ increased functionality or increased level of service. |
Implementation causing a significant amendment; above threshold, to the licensing cost in the agreement. | Yes |
Initial GASB Implementation Recognition
Initial subscription asset and liability recognition will be as of July 1, 2022. The City will not include additional outlays or additional implementations in the capital value outside those already being recorded as capital assets. Previously recorded additional outlays and implementations will be transferred to the new right of use SBITA asset class during the FY22/23 fiscal year at current net book value.
Record Retention
1. Subscript asset, liability, and amortization records shall be maintained in accordance with Generally Accepted Accounting Principles (GAAP) under the direction of the Accounting Division.
2. SBITA records shall be retained, even after a subscription ends, in accordance with retention schedules published by the City Auditor.
Responsibility for Reporting
Accounting Division shall provide bureau staff training, further define binding procedures to comply with this policy, and support bureaus to provide necessary information through audit schedules.
The Controller (or delegate) provides final interpretation of this policy, including exception.
Directors ensure bureau compliance with this policy and timely completion of related schedules to the Accounting Division (i.e., audit schedules).
Bureau staff are required to seek direction from the Accounting Division on untrained, complicated entries/agreements/changes, and voice concerns to the Accounting Division to increase overall process effectiveness.
History
Adopted by Chief Administrative Officer June 20, 2023.
Previous History for FIN-6.09 Capitalization of Computer Software Developed or Obtained for Internal Use
Resolution No. 36248, originally adopted by Council September 1, 2004.
Revised by Resolution No. 36435, adopted by Council September 6, 2006.
Repealed by Resolution No. 37318 on September 20, 2017.