Rosa H Renaud, Financing & Treasury
Jean Gill, Financial Services Accounting
Lily Wang, Management & Accounting Practices
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Agenda
 Bond Financed Projects
 IRS Requirements
 CSU Policy
 Implementation
 IRS Audit Example
 Campus perspectives
 Reference Material
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Bond Financed Projects
Generally, the CSU has projects funded by tax-exempt financings under:
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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 Projects
 The 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 Requirements
 There 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 Retention
 General 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 Retention
 Examples 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 Retention
 At 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.
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Note: Federal grants are considered Private Use.
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CSU Policy
 Executive Order 1031
 11 Record Retention Schedules
Personnel/Payroll
Fiscal
Environmental Health & Safety
Student Records
Facilities
University Police
University Advancement
Academic Personnel
Curriculum & Accreditation
Research & Sponsored
Programs
Institutional Records
 Retention periods vary from 120 days to “permanently”.
 Review for compliance annually.
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CSU Policy (cont’d)
 What are “Fiscal Records?”
 Fiscal Records - Items typically generated by
departments such as
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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 Options
Options 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 Challenges
While 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 money
 Costly to identify and extract data
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Implementation Recommendation
Although 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.
 CMS
 Financial Services
 General Counsel
 Information Security
 Systemwide 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 Example
 In 2011, the IRS audited the Systemwide Revenue Bond
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program, Series 2005A and 2005B.
It involved 20 “new money” projects built in the 20042006 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 Perspectives
 Comments from campuses involved with the audits
 San Diego
 Sacramento
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Reference Material
 http://calstate.edu/ft/taxexemptbonds
 CPDC Memo Attachment F – Record Retention
Checklist
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CPDC Memo – Attachment F –
Record Retention Checklist
Item
Record
Records Management
1.
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 Checklist
Item
Record
Records Management
5.
Research projects sponsored by
external entities, including Federal
agencies (NIH, NSF, DOD, etc.), nonprofit 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
Campus
arrangements or agreements with a third
party, including cooperatives.
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CPDC Memo – Attachment F –
Record Retention Checklist
Item
Record
Records Management
8.
Invoices and supporting
documentation for all project
expenditures.
Campus
9.
Requisitions & Reconciliations
Campus
10.
Construction Contracts &
Agreements
Campus
11.
Schedule of Values
Campus
12.
Completion Certificate
Campus
13.
GO & LRB State Budget
Appropriations
Chancellor’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 Checklist
Item
Records
Records Management
15.
Board of Trustees Agendas and
Resolutions
Chancellor’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)
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