MEMORIAL HERMANN HEALTHCARE SYSTEM Construction, Real Estate and Support Services (CRESS) Capital Construction Project Accounting and Financial Reporting Marshall Heins Michael Hatton Adam Lane David Wilkerson Cathy Adams Paul Shearon

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MEMORIAL HERMANN HEALTHCARE SYSTEMConstruction,
Real Estate and Support Services (CRESS)Capital
Construction Project Accounting and Financial
ReportingMarshall HeinsMichael HattonAdam
LaneDavid WilkersonCathy AdamsPaul Shearon
September 16, 2004
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Summary of Capital Project Process

• Approval of Quarterly Capital Project Requests
• Initiation and Activation of Approved Budgeted
  Projects
• Project Budget Changes
• Unbudgeted Projects
• Purchase Order Processing
• Invoice Processing
• Tracking of Project Budget, Commitments and
  Expenditures
• Closing Completed Projects

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Capital Expenditures- Defined

• Capital projects including space changes or major
  building repair (those which extend the life of
  the building) with costs in excess of 5,000 (not
  including equipment) and a useful life of two
  years or more
• Equipment associated with capital projects which
  individually or grouped cost 1,000 or more,
  having an estimated useful life of two years or
  more. This is the only instance where assets may
  be grouped to reach the capitalization
  requirements.

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Approval of Quarterly Project Requests

• CEO/VP and CFO of facility/originating department
  submit routine quarterly list of capital
  construction project requests to Presidents
  Council for review
• Presidents Council approves list of projects and
  returns signed copies of the lists to the
  originating facility and CRESS
• CRESS Sr. Financial Analyst compares individual
  project requests documented on CCRs to approved
  project list to ensure budget funds were approved

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Example of Listing of Routine Quarterly Capital
Projects Approved by Presidents
Council(Construction Projects Only)
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Initiation of Projects

• Capital projects are to be coordinated through
  the Construction, Real Estate and Support
  Services Department before work begins if costs
  500,000 or greater on site facility manager if
  less than 500,000
• MHHCS Corporate Policy Number FIN-00009
• Staff with specialized background in architecture
  and construction
• Existing vendor relationships and economies of
  scale
• OSHA, ADA and other regulatory considerations
• System Best Practices

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New Project Approvals
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Activation of Individual Budgeted Projects

• Project Manager completes the CCR (Capital
  Construction Request) form, signs it and obtains
  signature of facility CEO. CCR expenditure
  categories can be tailored for specific project
  needs
• Project Manager forwards CCR to CRESS Sr.
  Financial Analyst who routes for additional
  approvals in accordance with policy
• After all approvals obtained, CRESS Sr. Financial
  Analyst activates project and sets up budget
  worksheet
• CRESS Sr. Financial Analyst submits CCR to
  Corporate Accounting for entry into Lawson
  accounting system
• Purchase orders cannot be issued and invoices
  cannot be paid until the project is activated in
  Lawson
• We recommend that project managers prepare
  purchase requisitions for all blanket purchase
  orders as soon as possible after activation
  (construction contractor, architect, engineer and
  consultants for example)
• Unused funds must be returned to MHHS and cannot
  be used for expenditures not specifically
  included in approved project budget unless
  approved by the Vice President of CRESS and the
  Presidents Council

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CCR Form- Page 1
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CCR Form- Page 2
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Unbudgeted Projects

• Proposed projects- Investigative Expenditures
• Incurred to assess feasibility of proposed
  project
• Project manager initiates PRF form, obtains same
  approval signatures as CCR, but PRF also requires
  Executive approval (see signature authority
  levels slide)
• PRF sent to CRESS Sr. Financial Analyst in same
  manner as CCR
• Projects Ready to Proceed
• Use CCR and follow same process as budgeted
  project, but Executive approval required (see
  signature authority levels slide)

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PRF Form
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Budget Changes

• Two categories of budget changes
• Scope Changes- project scope changes requiring
  additional funding. Use Scope Change Order form
  (SCO). Same approval and routing process as CCR,
  except additional Executive approval required-
  SCOs greater than 50,000 require Presidents
  Council Approval, those less than 50,000 require
  approval of VP of CRESS. For scope reductions,
  funds should be taken out of all applicable line
  items.
• Deductive Scope Changes- occurs when scope and
  funding of project is reduced. Use SCO form and
  obtain same approvals as CCR (VP of CRESS must
  approve use of funds that are placed into
  contingency).
• Hidden Conditions- a hidden condition is
  discovered such as asbestos abatement that could
  not have been anticipated prior to commencement
  of project. Use Hidden Condition Change Order
  form (HCCO). Follow same approval and routing
  process as CCR, except additional Executive
  approval required. Hidden conditions must be
  paid from contingency funds only (contingency
  funds are included in certain project budgets for
  unanticipated occurrences).

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Budget Change Approvals
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SCO Form- Page 1
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SCO Form- Page 2
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HCCO Form- Page 1
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HCCO Form- Page 2
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Purchase Order Processing

• Project budget must be approved and activated in
  Lawson before PO can be issued.
• Project manager prepares a purchase requisition
  that must be approved in accordance with PO
  approval levels
• Project manager forwards completed and approved
  purchase requisition to CRESS Financial Analyst
  who reviews budget and routes for approval
  signatures
• CRESS Financial Analyst sets up PO in Lawson and
  records PO in CRESS database
• Pink copy of purchase requisition goes to project
  manager who sends a letter to vendors to
  communicate contact information, billing
  procedures
• Project Manager will be vendor contact for all
  vendor inquiries
• RUSH POs- Project manager should clearly indicate
  rush orders on the Purchase Requisition

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Contracts and Proposals

• Contracts required for construction services
• Require same approvals as Purchase Requisitions
  and Invoices
• Requires additional review of VP of CRESS (CRESS
  Financial Analyst will forward for legal review)
• Project Manager must
• Obtain three originals of contracts, construction
  change orders and change directives (one for
  contractor, architect and CRESS)
• Verify that budgeted funds are available
• Prepare purchase requisition, enter the PR into
  the PR log, and attach original contracts,
  construction change orders and change directives
  and forward to the Financial Analyst for
  processing.
• The Financial Analyst will
• Verify budget
• Route contract/CO/CD for appropriate signatures
• Return two signed, executed copies of the
  contract/CO/CD with the pink copy of the purchase
  requisition to the project manager (who will
  distribute to the architect and contractor).

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Contracts and Proposals- Continued

• Proposals required for architect services,
  consultants, Medical Equipment Planners (MEPs),
  graphics
• Project Manager will obtain two originals of
  consultant proposals (one for consultant, one for
  CRESS)
• Proposals should include estimated reimbursable
  expenses which are to be documented on purchase
  requisition
• Require same approvals as Purchase Requisitions
  and Invoices
• MEPs- proposals should include performance
  standards

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Purchase Order Approvals
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Invoice Processing

• Project budget must be approved and activated in
  Lawson before invoices can be paid.
• Vendor sends invoices to Project Manager
• Project Manager verifies PO, project
  authenticates and signs invoice and sends to
  CRESS Financial Analyst
• CRESS Financial Analyst
• Verifies PO balance
• Routes for approvals
• Logs in CRESS database
• Sends to Accounts Payable for payment
• Accounts Payable generates checks on Tuesday and
  Friday
• Project Manager will be vendor contact for all
  vendor inquiries
• Rush Invoices- process in same manner as rush PRs

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Invoice Processing- Continued

• Short Pays- Invoices will not be short paid
  except for taxes

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Invoice Approvals
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Tracking of Project Budget, Commitments and
Expenditures

• Project manager records approved purchase
  requisitions and invoices into budget tracking
  worksheets provided by CRESS Sr. Financial
  Analyst
• CRESS Sr. Financial analyst will input all budget
  data into budget tracking worksheet from CCRs,
  PRFs, SCOs and HCCOs
• Project manager records purchase requisitions
  into project purchase requisition table and
  forwards to CRESS Financial Analyst.
• Project manager should verify if budget funds
  available before submitting purchase requisitions
  to Financial Analyst.
• If budget change needed (SCO, HCCO), attach it to
  the corresponding purchase requisitions and send
  to Sr. Financial Analyst who will make the
  necessary budget changes
• Project manager records invoices into invoice
  table and forwards to CRESS Financial Analyst
• Do not input data directly into managerial
  project budget summary worksheet because it
  contains formulas to calculate total budget and
  commitment amounts
• Project manager uses the managerial project
  budget summary worksheet as a tool to track
  budget vs. inception-to-date commitment amounts
• Timely maintenance of budget tracking worksheet
  will enable project manager to have up-to-date
  financial data on the project

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Project Purchase Requisition Table
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Invoice Table
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Managerial Project Budget- Summary Worksheet(Do
Not Input Data Into This Worksheet)
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Project Closures

• CRESS Sr. Financial Analyst monitors Monthly
  Financial Capital Report for completion dates,
  follows up with project managers regarding
  project status
• Project manager notifies CRESS Sr. Financial
  Analyst that a project will be closed
• CRESS Sr. Financial Analyst sends letters to
  vendors requesting that they submit all
  outstanding invoices on the project for review
  and payment
• CRESS Sr. Financial Analyst prepares project
  closure form and routes for signatures to project
  manager and VP of CRESS
• After project closure form completed and
  approved, CRESS Sr. Financial Analyst sends form
  to Corporate Accounting where project is closed
  and transferred to fixed assets.
• CRESS Sr. Financial Analyst will notify facility
  CFO after project is closed
• After a project is closed, no additional
  expenditures can be charged to the project.