A USA Today article began with, “Stolen and sensitive U.S. military equipment, including fighter jet parts wanted by Iran…have been available to the highest bidder on popular Internet sales sites.” The article went on to say that the equipment, “purchased with taxpayer money,” was available for purchase on eBay and Craigslist and included “components from F-14 fighter jets” and “used Nuclear Biological Chemical protective suit.”
Picture is courtesy of DollarPhotoClub.com
Why do thefts of physical assets occur?
The main culprit is usually a lack of accountability. Many companies and small governments do not perform periodic fixed asset inventories. (Fixed assets are also referred to as plant, property and equipment in commercial businesses and as capital assets in governments.) Often equipment is purchased and added to the depreciation schedule, but no one–at a later date–compares this master list of fixed assets to what is (or should be) physically present.
Most external auditors audit the additions and reductions of fixed assets in a given year but seldom, if ever, audit existing fixed assets–those that were owned at the beginning of the year. Consequently, theft of fixed assets may go undetected even when annual audits are performed. So what should you do?
Nip It in the Bud
To use the words of the inimitable Barney Fife, “Nip it. Nip it. Nip it in the bud.” But how?
It’s quite simple (though it can be time-consuming).
Have your department heads perform an annual inventory of the assets, comparing the master list of fixed assets purchased with what is physically present; then this annual reconciliation should be reviewed by someone outside the department. You should also, by policy, assign responsibility for each fixed asset to a particular employee (e.g., department head). For example, a city could assign responsibility for all public works equipment to the public works director. Once the director has completed the annual inventory reconciliation, an outside person (e.g., the finance director or an external auditor) should review it. If any of the equipment in that department is not present, then the director is accountable.
Train your personnel to take annual inventories, and let everyone in the organization know about your fixed asset policy. Transparency and accountability are critical; if each asset is not assigned to a particular person, you will make little progress in decreasing theft.
Most organizations adopt a threshold for additions to the depreciation schedule (fixed asset inventory). For example, a business might use a $2,000 threshold; all fixed assets purchased for less than this amount are not capitalized (added to the depreciation schedule)–they are expensed (and not added to the depreciation schedule). Using a capitalization threshold is good, but there is a problem: Smaller dollar assets are more likely to be stolen (think iPads), especially if they are not inventoried.
If you adopt a capitalization threshold for your depreciation schedule (e.g., $2,000), consider maintaining a second list of all equipment purchases above a lower dollar level (say $250). Assign the responsibility for these lower value items to someone in each department. Inventorying small dollar items is sometimes critical.
The Wall Street Journal reported that the U.S. Marshals Service had lost a few thousand encrypted communication devices (mainly radios); such devices, in the wrong hands, can allow persons to listen in on policing operations and, as a result, potentially compromise the safety of officers and citizens. And what was the cause of the loss of these devices that ranged in prices between $2,000 to $5,000? A lack of appropriate inventorying software and accounting.
GFOA Capitalization Guidelines
The Government Finance Officers Association (GFOA) recommends that state and local governments consider the following guidelines in establishing capitalization thresholds:
- Potentially capitalizable items should only be capitalized if they have an estimated useful life of at least two years following the date of acquisition
- Capitalization thresholds are best applied to individual items rather than to groups of similar items (e.g., desks and tables) unless the effect of doing so would be to eliminate a significant portion of total capital assets (e.g., books of a library district)
- In no case should a government establish a capitalization threshold of less than $5,000 for any individual item
- In determining capitalization thresholds, governments that are recipients of federal awards should be aware of federal requirements that prevent the use of capitalization thresholds more than certain specified amounts
- Governments should exercise control over potentially capitalizable items that fall under the capitalization threshold
Your Capital Asset Procedures
How does your organization lessen the threat of theft?