There is a truism among outdoors folks that if your feet are cold, put on a hat. A similar counterintuitive truth is presented to accounting managers: if fixed asset accounting isn’t working, fix the asset tracking system. In both cases, the real problem can’t be treated where the symptoms appear.
Fixed asset accounting ledgers are chronically out of date in many organizations. Assets are added inconsistently with data entry left to the discretion of the clerk at the time of entry. Updates and retirement rely on paper or electronic data provided by the field organization, which is often sketchy. If they occur at all, audits amount to reports sent to departments in the hope that the line managers will actually compare the report to the field assets and document any differences. Worst of all, these asset tracking malpractices continue year after year.
It’s no wonder that over 30% of the assets shown on ledgers no longer exist. Some ledgers are so cryptic in their descriptions that it’s difficult to actually determine what the assets are. When assets are aggregated inconsistently, capitalization policies creep up relentlessly to mitigate the ever increasing cost to maintain the records. Having ghost assets on your ledgers means a company might be overpaying for taxes and insurance on assets that don’t exist. Despite these issues, senior management believes that such problems are not material.
Taking the pain out of fixed asset accounting
The truth is that a properly designed and maintained asset tracking program can reduce the cost of maintaining asset accounting data be over 90%, make data more current, save PPT, and provide low-cost, reliable audits. That’s just in the accounting department. The line organization will receive similar, large-scale benefits as well.
The secret is to deploy a system that makes it easy for line management to label assets and maintain asset information as changes occur. The accounting department can then harvest transaction activity for capital assets to keep the ledgers current and consistent with actual field usage. When audits are needed, the labels can be tallied electronically with less effort and far more accuracy than any comparable manual effort.
This level of automation requires asset tracking software to be adapted to the organization practices and behavior. The effort must focus on reducing the labor needed to tag, identify and record asset activity (adds, moves, changes and retirements) as they occur and establishing clear procedures and responsibilities. By definition, this will yield more consistent data, timely updates, and reduce the complexity and difficulty of audits. The bulk of this data collection activity will occur outside of the accounting department because that is where the transactions occur and can be recorded accurately.
Be Prepared to Overcome Pushback
Senior management may be blasé about the importance of enhanced asset tracking procedures. Operations may be reluctant to take on more responsibilities for asset management. Auditors may worry about the security of the financial records. Even the accounting department may question the feasibility of relying on outside departments to record asset transactions.
With the right software and proper procedures, none of these objections can be factually sustained. The challenge is to provide the incontrovertible evidence to demonstrate improved asset controls can not only work, but will yield significant savings. That will require considerable internal effort and, often, upfront work with the selected vendor to design and articulate the solution.
It is rare that we connect with an organization where the opportunity to achieve significant organization-wide savings does not exist. The challenge for the change agent is to effectively navigate the obstacles needed to achieve that objective. No time for cold feet.