Many businesses are already aware of how important a fixed asset tracking solution is for the profitability and stability of their operations. When maintained properly, a fixed asset ledger can reduce many headaches across a company, such as improving budgeting and saving the company tens of thousands of dollars a year. But unfortunately, many of these same businesses don’t give enough attention to tracking and maintaining accurate fixed asset records, and this leads to a problem known as ghost assets.
Ghost assets are recorded as fixed assets in your business ledger, but in reality, can’t be accounted for because they no longer physically (or digitally) exist. This discrepancy happens because, over the years, you purchase items for your business such as machinery, furniture, and equipment, but these can often
disappear or depreciate for various reasons. For example, an employee may steal a company computer which is still counted as fixed in your ledger, or a company car no one has used in a year might be sitting parked somewhere on your property.
Missing, stolen, or unaccounted for assets are a proven bane to companies across the world. In fact, Gartner, Inc. estimates that up to 30% of organizations don’t know what items they own, where they are, or who is using them. Additionally, around 70% of organizations have at least a 30% discrepancy between reported fixed inventory and what’s actually available to them. These statistics mean you could be overpaying taxes and insurance on items you don’t actually own, and they hold unfavorable implications about your company’s efficiency and long-term operations.
This paper will help you better understand the dangers of ghost assets to your business and what you risk when you don’t maintain and audit your fixed asset ledger. You’ll also learn how to:
- Implement best practices and standards in your fixed asset management solution
- Detect and avoid ghost assets
- Create the most accurate overview of your company’s records and finances as possible
The Impact of Ghost Assets and Inaccurate Fixed Records
When your business has inaccurate fixed records due to ghost assets, you’re impacted in a variety of ways, not just in terms of financial or productivity losses. Here are some of the problems that arise when you don’t track down and eliminate ghost assets from your ledger:
Inflated Tax Liability
When you have too many ghost assets in your books, you are misrepresenting the amount of inventory you own that is actually taxable, which could result in you significantly overpaying on your taxes. For example, if you indeed can’t account for 30% of your assets, you are overpaying at least that much of a percentage on items you don’t actually own or use anymore. Gartner notes companies can reduce their tax bill by 20-30% by retiring unused or missing assets.
Higher Insurance Premiums
In a similar manner, ghost assets skew the actual amount of fixed, usable assets you own. Insurance companies, however, will charge you for everything you claim is fixed and needing business insurance coverage. Again, if you are missing 30% of your assets, you are unnecessarily overpaying on your insurance premiums.
Avoidable Maintenance Fees
Ghost assets will also cost you more money when you’re being charged to maintain them but no longer own them, like a lost truck in your fleet or an office printer that’s no longer in the building. Gartner discovered that one particular business saved $100,000 in maintenance fees when it eliminated a product it wasn’t using.
When employees prone to unethical behavior discover you don’t keep an accurate record of assets, they might resort to stealing business assets. This is because they know they won’t get discovered, possibly until months or years down the road when you actually sit down and try to eliminate ghost assets and get your ledger under control.
Physical assets such as computers or machinery can deteriorate over time without proper maintenance. When these items are accounted for in a fixed asset ledger but are actually missing or their location is incorrect, the assets will depreciate and will eventually need to be replaced entirely, leading to increased expenditures for your business.
At first glance, ghost assets might not appear to have anything to do with your business’s productivity. However, nothing could be farther from the truth; ghost assets reduce productivity and efficiency when employees are unable to perform their jobs due to assets which are marked as available but are really missing. A ghost asset which is listed as “available” in your system is not any use to an employee who needs it right away.
If you aren’t keeping track of what assets are actually available to you and which are missing, you could be subject to a variety of non-compliance risks depending on your industry. The negative impacts of ghost
assets on compliance are especially serious if your business is part of a federal or state government agency which is held to certain budgeting and regulatory standards. For example, the United States Government Accountability Office (GAO) found that in 2007, NASA was not responsibly tracking its assets and therefore abusing its funding; in particular, GAO could not find 65 missing items worth over $850,000.
Misleading Financial Statements
Ghost assets skew the accuracy of a company’s balance sheet and finances, affecting its overall bottom line. Not only will financial reports and statements be inaccurate by overstating operating costs, but these inaccuracies will hinder the development of proper capital expenditure projections and budgeting for future years.
According to The New York Times, poor accounting is one of the top ten reasons a business will often fail. Couple this with the fact that the Small Business Administration believes about half of the businesses will survive past the five-year mark, and it’s apparent that ghost assets can be a contributing factor to a business which has to close its doors
The Benefits of Tracking and Verifying Fixed Assets
The problems surrounding ghost assets don’t have to haunt your business. A properly-instated asset tracking and management solution will help you deal with your ghost assets, and verify the amount of fixed assets you actually have. Asset tracking will help you:
Eliminate ghost assets altogether
If you’re diligent in tracking and verifying your assets, you will find and reduce the number of ghost assets in your books. Doing this process often means you’ll seldom, if ever, have to worry about recording missing, stolen, or unused items in your fixed asset ledger.
When you routinely update an accurate record of your business assets and inventory, wayward or disheveled employees are less likely to steal from the company. This is because they will recognize everything is being recorded and watched carefully, which should help deter them from considering theft.
Obtain adequate insurance coverage
Eliminating ghost assets and verifying your fixed assets means you know exactly what you own, which can help you determine the most up-to-date, comprehensive insurance needs only for what you own and are using on a regular basis. Inevitably, you will find you didn’t need as robust an insurance plan if you didn’t track down and waive ghost assets from your ledger.
Reduce insurance premiums
With an accurate insurance plan for your business also comes reduced insurance premiums. When you pay only for the assets you own, you won’t have to worry about overpaying for those missing ghost assets.
Instead, you can rest assured you’re not only getting the coverage you need but are also getting a fair quote based on your actual fixed assets.
Provide accurate financial reporting
Conscientious asset management and verification will help you account for only the assets you own, and in turn, provide a more accurate overview of your business’s bottom line. This translates into proper financial reporting to stockholders, employees, potential investors, and anyone else who has a financial stake in the business.
Improve budgeting projections
When your fixed asset ledger isn’t weighed down by ghost assets, you will have a clearer picture of your business’s operational costs. You’ll also be able to generate improved budgeting projections for future capital expenditure in the quarters or year to come without fear of incorrect numbers disrupting your calculations.
Save on taxes
Eliminating ghost assets means your business can avoid paying taxes on property, inventory, and assets you no longer use or don’t own anymore. In an example in a report, accounting firm CohnReznick noted how a food industry manufacturer could save up to $180,000 on personal property taxes if the business appraised and audited its fixed asset ledger.
The Best Ways to Remove Ghost Assets and Avoid Accumulating More
In order to benefit from the points listed above, your company should work hard to eliminate ghost assets and make your fixed ledgers as accurate as possible. You can accomplish this through several different ways: Choose the Right Asset Tracking Software
Implementing an asset tracking solution in your company is the first step in eliminating ghost assets and getting your asset ledger in order. While the “right” or “best” asset software will look different across businesses and even industries, you want to look for a few key elements in your asset management solution to ensure it’s not only functional but beneficial:
The platform should be customizable and flexible enough to meet your business’s specifications and needs (otherwise, it’s no better than keeping manual track of your fixed assets via an outdated method such as spreadsheets).
- The asset solution should require little to no training in order to use the software to its fullest capabilities to reduce the strain on implementing it within your organization.
- The software should be integrated and allow access to multiple users across any department in your company, to ensure real-time updates and information are available to anyone who needs it.
- The asset tracking solution should also be accessible from a variety of devices and locations, to eliminate concerns about a local documentation, spreadsheet, or fixed asset ledger only accessible via one centralized computer network.
Tag Each of Your Assets
Tagging your assets, both physical and digital, will greatly increase the accuracy of your fixed asset ledger. A tagging function is available in many asset tracking software solutions, and utilizing it for all your assets means you’re more likely to track each asset through its entire lifecycle, from purchase to disposal, to prevent it from turning into a ghost asset.
Physical assets can be tracked by assigning an individual code to each item and using RFID or barcode technology to scan them; this method especially helps you organize multiple items of the same make or model. Digital assets such as warranties or licenses can also be tagged, and as their accompanying products or software approaches expiration, you will be able to update both the physical asset and its documentation at the same time.
Conduct Routine Asset Audits
While you will inevitably update your fixed asset ledger when you implement an asset tracking solution, you can’t simply leave it at that. In order to ensure ghost assets don’t start showing up in your inventory, it’s important to conduct thorough and routine asset audits. These audits will reduce the likelihood of any employee in your business reporting an asset as fixed when it’s really missing and will help you update and eliminate assets when they’ve reached the end of their life cycles.
Whenever you perform an audit, pay special attention to potential ghost points. These are particular places which you’re likely to overlook when cataloging assets. In many cases, ghost points are locations like a rarely-accessed storage room or the home offices of remote employees. Making sure assets in these areas are accounted for will help you avoid the drain ghost assets have on your company’s finances and efficiency.