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SHELBY COUNTY SCHOOLSASSET MANAGEMENT BEST PRACTICES MATERIAL

PREPARED BY PROBAR ASSOCIATESNOVEMBER 27, 2013TOLL FREE 800.871.0770FAX 301.459.91439300 ANNAPOLIS RD SUITE 203LANHAM, MD 20706

National Property Management Association...............................................................................................................3Voluntary Consensus Standards...................................................................................................................................3What is an Asset?.........................................................................................................................................................4

Finance Department Definitions..........................................................................................................................4

Generally Accepted Accounting Principles...........................................................................................................4

GASB 34............................................................................................................................................................... 5

OMB A-87.............................................................................................................................................................5

Recommendation For Capital Asset Definition.....................................................................................................5

Controlled Assets.........................................................................................................................................................6

Software...............................................................................................................................................................6

Sensitive Assets....................................................................................................................................................6

Hazardous Materials............................................................................................................................................6

ASTM E2608 Standard Practice for an Equipment Control Matrix (ECM).............................................................7

Recommendation for Controlled Assets Definition..............................................................................................8

Asset Lifecycle............................................................................................................................................................10Procurement..............................................................................................................................................................10Receiving....................................................................................................................................................................10

ASTM E2605-08 Standard Practice for Receiving Property................................................................................10

Standardization of Tag Placement......................................................................................................................11

Recommendations for receiving........................................................................................................................11

Physical Inventory Loss/Overage Rates..............................................................................................................11

ASTM E2132 Standard Practice for Physical Inventory of Durable, Moveable Property....................................12

Losses.................................................................................................................................................................13

Shelby County SchoolsAsset Management Best Practices MaterialsPrepared by ProBar Associates November 27, 2013

BEST PRACTICES

A best practice is a technique, method, process, or activity that is believed to be more effective at delivering a particular outcome than any other technique, method, process, etc. when applied to a particular condition or circumstance. The idea is that with proper processes, checks, and testing, a desired outcome can be delivered with fewer problems and unforeseen complications. Best practices can also be defined as the most efficient (least amount of effort) and effective (best results) way of accomplishing a task, based on repeatable procedures that have proven themselves over time for large numbers of people.

There are two main sources for “best practices” in asset management:

National Property Management Association Voluntary Consensus Standards from ASTM International

NATIONAL PROPERTY MANAGEMENT ASSOCIATION

National Property Management Association (NPMA) is the leading membership association for personal property and fixed asset professionals. Companies and organizations around the world benefit from the strategic role of fixed asset and personal property professionals who are poised to be strong, integral parts of all organizational processes and contribute greatly to the bottom line.

NPMA serves as a center of excellence, education, and evolution for the profession. Recognized as world-class professionals, members benefit from the finest products, programs, and services that promote professional development.

The exchange of knowledge is NPMA's primary focus. Continuous learning makes you a better professional and a more valuable employee. It is your key to advancement and valuable insurance in times of uncertainty in the job market. NPMA offers you the opportunity to gain a wealth of knowledge in regards to:

accountability and responsibility issues buy vs. lease issues

regulatory compliance issues value-added property management techniques

maintenance procedures cost of ownership

contract requirements Vendors

property utilization and reutilization tax strategies

material management product availability and warranties

risk management effective property control systems

disposition techniques

VOLUNTARY CONSENSUS STANDARDS

Organizations turn to standards development organizations to establish consensus standards. Standards development organizations help a wide base of users, outside their organization, develop, amend and maintain standards.

In June 2000, National Property Management Association and ASTM International partnered to organize Committee E53 on Property Management Systems. Committee E53 is the official home for the development of management systems criteria, including performance standards, practices, metrics, and methods of effectiveness for the conduct of management and administration activities for durable and movable assets. The standards are in: Volume 04.12 in the Annual Book of ASTM Standards. ASTM International has very strict copyright rules that prevent us from providing you with a copy. We recommend that SCS purchase their own subscription to the ASTM Standards, Volume 4.12.


WHAT IS AN ASSET?

FINANCE DEPARTMENT DEFINITIONS

According to the Asset Disposal Procedure Governed by Purchasing Regulation 1000:

Capital Assets include property, equipment, and infrastructure assets that are owned by and/or titled to the organization or otherwise procured with public funds, as follows:

A. Tangible Asset – acquisition value of $5,000 or more and a useful life expectancy of more than one year.B. Intangible Asset – acquisition value of $100,000 or more and a useful life expectancy of more than one year; orC. Infrastructure Asset – acquisition value of $5,000 or more and a useful life expectancy of more than one year.

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

An organization must follow a set of rules and regulations, such as the Generally Accepted Accounting Principles (GAAP). Reports called financial statements are used to provide interested parties a “snap shot” of the organization’s performance. Financial statements are provided to management, investors and interested parties in order to give them a “snap shot” of the organization’s position and performance. Decisions about expansion, investment and continued viability of programs or entire organizations are made based on the information provided.

All items owned by an organization can rightfully be considered assets, but as a practical matter, organizations do not capitalize all of them. Depreciation represents the recognition of the cost of an asset over time, by calculating its estimated loss in value during each period.

There are no regulations that govern the definition of a Capital Asset that appears on the balance sheet of an organization. Governmental Accounting, Auditing and Financial Reporting (Government Finance Officers Association, 1994) describes the latitude in determining a capitalization threshold:

There is no uniform rule governing when a given asset should be capitalized. Rather, each government is responsible for establishing a capitalization policy appropriate to its specific circumstances . . . . Typically, a government's capitalization threshold correlates with its size.

In recent years, more and more governments have come to reexamine their capitalization thresholds. Often cost/benefit considerations lead governments to conclude that a higher capitalization threshold may be appropriate in their circumstance.

According to Generally Accepted Accounting Principles (GAAP), capital assets should be recorded at historical cost or estimated historical cost. Cost includes purchase price or cost of construction plus any other charges incurred to place the asset in its intended location and condition for use. Examples of other charges include, but are not limited to:

legal and title fees appraisal and negotiation fees surveying fees other closing costs damage payments land-preparation costs demolition cost architect and accounting fees insurance premiums during the construction phase


transportation charges interest cost incurred during construction of the asset

Most outside and in-house resources such as labor, materials, and supplies should also be included as part of the cost of the asset.

GASB 34

In 1999, the Government Accounting Standards Board issued Statement 34, referred to as GASB 34, which requires that state and local governments provide full accrual and new capital asset accounting, in an effort to make their annual reports easier for legislators, oversight bodies, and citizens to understand. Under GASB 34, SCS is required to calculate and report depreciation on their Capital Assets however, it does not establish a specific dollar value that is acceptable. The higher the threshold for capitalization of capital assets, the fewer items of property for which SCS must calculate depreciation.

Further, a fiscal note, the classification of capital assets depends upon the funds used to purchase them: "A clear distinction should be made between general capital assets and capital assets of proprietary and fiduciary funds. Capital assets of proprietary funds should be reported in both the government-wide and fund financial statements. Capital assets of fiduciary funds (and similar component units) should be reported only in the statement of fiduciary net assets. All other capital assets of the governmental unit are general capital assets. They should not be reported as assets in governmental funds, but should be reported in the governmental activities column in the government-wide statement of net assets” (prepared by OSC). (GASB Sec 1400)

OMB A-87

The Office of Management and Budget (OMB) Circular A-87, Cost Principles for State, Local, and Indian Tribal Governments, Attachment B, (Revised 5/10/2004) touches on capitalization in its guidelines for administration of federal grants. It allows property costing up to $5,000 to be charged to federal grants as supplies, rather than capital outlay, unless the recipient organization has a lower capitalization threshold:

15. Equipment and other capital expenditures.

a. For purposes of this subsection 15, the following definitions apply:

(2) "Equipment" means an article of nonexpendable, tangible personal property having a useful life of more than one year and an acquisition cost which equals or exceeds the lesser of the capitalization level established by the governmental unit for financial statement purposes, or $5000.

and

b. The following rules of allowability shall apply to equipment and other capital expenditures:

(2) Capital expenditures for special purpose equipment are allowable as direct costs, provided that items with a unit cost of $5000 or more have the prior approval of the awarding agency.

As a result, many local governments have adopted $5,000 as the capitalization threshold for machinery and equipment with a minimum useful life of one year.

RECOMMENDATION FOR CAPITAL ASSET DEFINITION

We recommend that you keep your capitalization threshold at $5,000 with a minimum useful life of one year for Tangible Assets.


We recommend it should be clear that Historical Cost (purchase cost) includes purchase price or cost of construction plus any other charges incurred to place the asset in its intended location and condition for use. Contributed or donated assets should continue to be recorded at their fair market value on the date donated.

CONTROLLED ASSETS

Controlled assets are assets that do not meet the capitalization threshold for Capital Assets but should be controlled by the organization for a variety of reasons. There are many ways to approach the question, “What assets should we track?”

SOFTWARE

Although we are not aware of any current audits underway, the Software and Information Industry Association (SIIA), the Business Software Alliance (BSA) or the copyright holder (e.g. Microsoft, AutoDesk) may contact SCS at any time and allege that SCS is using unauthorized software. Penalties for under-licensing and software piracy are the same. If contacted, SCS may be submitted to a software audit. The results of this audit are then compared to the products the organization has licensed. Illegal software is destroyed and replaced, and the offending organization pays a fine based on what copyright law allows-up to $150,000 per infringed title. In addition to paying a fine per title, organizations can be prosecuted criminally and fined up to $250,000, or responsible parties can be sentenced to up to five years in jail—or both—for software piracy. Your organization must be continually mindful of the possibility of piracy; if even one employee is convicted of software theft, officials can be held legally responsible and prosecuted accordingly.

According to Gartner, Inc.: Life Cycle Management Underpins IT Asset Management, F. O’Brien, August 6, 2004, enterprises that do not integrate usage and inventory data overbuy software licenses for 60% of their portfolio and are non-compliant on 30% of their software.

SENSITIVE ASSETS

The federal government defines sensitive property as “property for which the theft, loss or misplacement could be potentially dangerous to the public safety or community security, and which must be subjected to exceptional physical security, protection, control and accountability.”

Sensitive information is becoming increasingly important in a time when data is harder to protect. Technology is increasing the storage capacity and portability of devices. Laptops, tablet computers and PDAs are obvious targets. External flash drives, recordable CDs and DVDs, hard drives, and camera-equipped cell phones may also contain sensitive information. Encryption is effective against unauthorized access but physical security and accountability of these assets is critical.

HAZARDOUS MATERIALS

Some electronics (such as color CRTs computer monitors, color CRT TV tubes, and smaller items such as cell phones and other “hand-helds”) test “hazardous” under Federal law. If so, they are subject to special handling requirements under Federal law, subject to certain exemptions.

The Environmental Protection Agency encourages reuse and recycling of used electronics, including those that test “hazardous.” To facilitate more reuse and recycling of these products, EPA has less stringent management requirements for products bound for reuse and recycling. Specifics follow:

Computer monitors and televisions sent for continued use (i.e., resale or donation) are not considered hazardous wastes.


Federal Regulatory Requirements for Recycling of CRTs: EPA encourages recycling of CRTs. Thus, CRTs sent for recycling are subject to streamlined handling requirements.

Circuit Boards are subject to a special exemption from Federal hazardous waste rules.

Whole unused circuit boards are considered unused commercial chemical products, which are unregulated. Whole used circuit boards meet the definition of spent materials but also meet the definition of scrap metal. Therefore,

whole used circuit boards that are recycled are exempt from the hazardous waste regulations. Shredded circuit boards are excluded from the definition of solid waste if they are containerized (i.e., fiberpaks) prior to

recovery. These shredded circuit boards cannot contain mercury switches, mercury relays, nickel cadmium batteries, or lithium batteries. If these materials are not treated this way, then they are considered hazardous waste and must be treated as such.

For the complete federal hazardous waste requirements for generators, consult 40 CFR Parts 260-262.

Wastes from facilities that generate over 100 kilograms (about 220 lb.) per month of hazardous waste are regulated under Federal law when disposed. CRTs from such facilities sent for disposal (as opposed to reuse, refurbishment or recycling) must be manifested and sent as “hazardous waste” to a permitted hazardous waste landfill.

ASTM E2608 STANDARD PRACTICE FOR AN EQUIPMENT CONTROL MATRIX (ECM)

ASTM E2608 provides an excellent Standard Practice for an Equipment Control Matrix (ECM). This standard gives the organization a structure for evaluating the consequences of the loss of control of various classes of equipment and five levels of control that may be appropriate.

The Standard presents a cross reference matrix of Equipment Control Classes and Equipment Control Levels. The result is a standard level of control for each level of consequence, with provision for increased or decreased level of control in particular circumstances. Entities that choose to track and control equipment at a level of control other than standard should investigate and understand the implications of such decisions and document the supporting rational.


http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?sid=4180616ab80a2d6031368d52131ffe7e&c=ecfr&tpl=/ecfrbrowse/Title40/40cfrv23_02.tpl

RECOMMENDATION FOR CONTROLLED ASSETS DEFINITION

We recommend that SCS review, discuss and adopt the ASTM E2608 Standard Practice for an Equipment Control Matrix (ECM) provided on the following page.


Equipment Control Class ECC-1 ECC-2 ECC-3 ECC-4 ECC-5

Equipment Control Level Continuous Continuous While Mobile Event Tracking Containment No Tracking

Highest Standard of Sensitivity

Moderate Standard of Sensitivity Minimal Standard of Sensitivity Controllable Standard Non-Accountable

1 2 3 4 5ASTM Description Consequences of loss

of control is a societal safety/security impact, which is characterized by negative societal safety or security impact and would extensively damage the reputation of the organization.

Consequences of loss of control is a personal safety/security impact, which is characterized by negative personal safety or security impact that does not rise to the level of a societal safety or security impact.

Consequences of loss of control is a operational safety/security impact, which is characterized by negative operational or security impact that does not rise to the level of a personal or societal safety or security impact.

Consequences of loss of control is a compliance safety/security impact, which is characterized by negative compliance with applicable laws, regulations or other relevant internal or external guidance that does not rise to the level of an operational impact.

Consequences of loss of control is not discernible, which is characterized by having no visible or recognizable impact on the organization.

Examples Firearms (duty or training)Munitions or ExplosivesDestructive Devices

VehiclesSecure Communications, Secure RadiosStun Guns, Tasers

Software Desktop/LaptopEquipment with Retainable Memory not encrypted:

Personal Computing Devices (i.e., PDA, Blackberry, etc)Cameras

Portable, Easily Convertible to Private-use and/or High Potential for Theft: Tools, Satellite Phones

Televisions, VCR/DVD, Projectors, Small Office Machines

Minimum: End of Life Control for monitors, copiers, fax, scanner, printer and other peripherals where improper disposal could result in hazardous materials being released into the environment or consider classifying as ECC-3.


ASSET LIFECYCLE

In order to understand how an organization manages and controls assets, we must look at the entire lifecycle of the asset from cradle to grave:

PROCUREMENT

We have a few recommendations:

Finance/Capital Assets should be included in the approval process for all purchases in excess of $5,000 so that they are properly coded and captured.

SCS should adopt procedures for identifying and circulating information about surplus assets. SCS should provide Requestors with clear policies, procedural documentation and training concerning the

proper procurement of Capital Assets.

RECEIVING

ASTM E2605-08 STANDARD PRACTICE FOR RECEIVING PROPERTY

ASTM International has issued a Standard Practice for Receiving Property, E2605-08 approved February 15, 2008. These Standards have strict copyright provisions that prevent us from providing a copy. We recommend that SCS


Plan

Procure

Receive

Use

Redeploy

Dispose/ Donate

obtain their own subscription to the Basic Volume 04.12 that contains the Property Management System standards developed by Committee E53.

The Receiver is required to verify the property against the incoming documentation (Packing List or Invoice if included), including condition, and note any damage or discrepancies or both on the incoming documentation.

The Receiver is then required to ensure that the shipment was ordered (Locate Purchase Order) and what portion of the order was received – reconciling the incoming document against the authorizing document.

A receiving report is generated, either paper or electronic and will include all of the information above including the cost, quantity and asset tag identifier, if applied.

STANDARDIZATION OF TAG PLACEMENT

There are no standard guidelines for the placement of tags on assets at SCS.

RECOMMENDATIONS FOR RECEIVINGThe following recommendations will improve the accuracy and completeness of the Capital and Controlled Asset financial records and receiving processes.

1. We recommend that Requestors at each Department be issued a small supply of bar code asset tags and be responsible for physical receiving and entering both Capital and Controlled Assets into a centralized asset management database, before they authorize payment to the vendor. A centralized bar code asset management database would allow larger Departments to use handheld computers to identify and tag the items on loading docks or in the field where they are received. Smaller Departments can manually enter the information directly into the database. User definable fields will allow each Department to customize the data collected and utilize it for operational and planning purposes while providing the information necessary for financial statements.

2. Standard procedures for capturing and recording software license information for software purchases should be developed and used to reconcile against actual users in order to avoid unnecessary purchases of new software or violations.

3. Standardized tag placement and identification guidelines should be developed. There are four aspects that which should be considered – consistency, appearance, accessibility, and vulnerability to damage or wear. Consistency in tag placement is critical to subsequent inventories. This allows inventory personnel to quickly determine whether the item is tagged by looking in only one location on the asset. Inconsistency wastes time and can often cause items to be inadvertently tagged more than once.

PHYSICAL INVENTORY LOSS/OVERAGE RATES

The Physical Inventory Standard (ASTM Standard E2132-01(2007)) establishes a standard for excess losses which can indicate possible weaknesses in record keeping and property control. Excessive overages can indicate possible


weaknesses in an organization’s receiving and identification processes. The loss or overage rate is calculated as the number or dollar value of missing or found assets divided by the total asset population.

Loss Rate by Number: Number of items not located divided by the Number of Items in Total Population.

Loss Rate by Value: Acquisition Value of items not located divided by the Acquisition Value of items in Total Population.

Overage Rate by Number: Number of item overages divided by the Number of Items in Total Population.

Overage Rate by Value: Acquisition Value of item overages divided by the Acquisition Value of items in Total Population.

In this Standard, the consequences of failure determine the failure tolerance. Consequences to society, person, and organization include the cost and effort to replace the item, lost revenue from the release of sensitive information, lost productivity from the unavailability of an item. Refer to the ASTM E2608 Standard Practice for anEquipment Control Matrix (ECM) on page 7 for a discussion of consequences and loss of control. In this Standard, acceptable annual loss rates vary from 0.5% to 5%, depending on the consequences.

ASTM E2132 STANDARD PRACTICE FOR PHYSICAL INVENTORY OF DURABLE, MOVEABLE PROPERTY

ASTM International has issued a Standard Practice for Physical Inventory of Durable, Moveable Property that was reapproved May 1, 2007. These Standards have strict copyright provisions that prevent us from providing a copy. We recommend that obtain their own subscription to the Basic Volume 04.12 that contains the Property Management System standards developed by Committee E53. We have incorporated this Standard and our own experience in conducting physical inventories in to our analysis below:

INVENTORY TYPES

There are several types of inventories that may be used:

Cyclical or “Inventory-by-Exception” Statistical Sampling Wall-to-Wall

SCS is currently using the Wall-to-Wall type.

CYCLICAL INVENTORIES

Cyclical inventories are continuous inventories with a specific beginning and end date using “inventory-by-exception” methods. The period could be your fiscal year or two fiscal years. Every time the asset is touched, it counts as an inventory, including maintenance of vehicles, auto-discovery inventories conducted by your Computer Services staff. At the end of the inventory period, any items not touched must be located in order to complete the


inventory. For example, if you had facilities in 10 different locations, you might schedule your team to perform an inventory of one location each month. In the eleventh month, you would run a report of all items not inventoried within the last 11 months and these “exceptions” are items that must be inventoried before the end of the year.

STATISTICAL SAMPLING

This type of inventory is based upon the laws of probability. A portion of the assets are inventoried and assuming that the results are favorable, you assume that the balance of your assets are accurate. The smaller the sample, the higher the risk. This type of inventory may be used to evaluate the accuracy of your overall inventory when a 100% inventory is cost prohibitive.

WALL-TO-WALL

A wall-to-wall inventory is the most common type of asset inventory. It requires that all locations be visited and all items that meet the inventory and tracking criteria be inventoried. A wall-to-wall inventory may be required when a statistical sampling is conducted and is a failure based on the expected goal. In many cases, a wall-to-wall inventory is a regularly scheduled event that is used to update the property records prior to the end of the fiscal year.

INVENTORY FREQUENCY

Inventory frequency is set by internal policy. Frequency is determined by several factors:

Type of Equipmento Hazardous Materialso Precious Metalso Weapons and Ammunitiono Equipment with Sensitive Information

Security of Environmento Unlimited access, multiple buildingso Limited access, tight security

Potential for Theft/Loss Value of Assets

This was addressed in ASTM E2608 Standard Practice for an Equipment Control Matrix (ECM) beginning on page 7.

INVENTORY PERSONNEL

Many organizations will have the people responsible for the assets conduct the inventory. They are familiar with the assets and their location and are typically the most cost effective option for the organization. However, an inventory is an audit and, as such, needs to be performed by individuals who have no vested interest in the outcome.


At SCS, you have your own staff perform inventories every other year and a third party vendor conduct the inventory every other year.

LOSSES

Excessive loss, damage or destroyed (LDD) assets can indicate poor internal management and controls, policy or procedural weaknesses, or lack of compliance, any one of which can impact entity profitability, mission performance or reputation. ASTM International issued ASTM 2131-09 Standard Practice for Addressing and Reporting Loss, Damage or Destruction of Tangible Property. The current edition was approved on September 1, 2009.

This standard recommends that the organization define when and how investigations are conducted, when and how corrective action is appropriate and define the reporting process.

A LDD policy is important and can be helpful when used in conjunction with the Equipment Control Classes described in ASTM Standard Practice E2608, the Standard Practice for an Equipment Control Matrix, where assets are grouped based upon the consequences of the loss of control of that equipment.

Once a policy is established, under this practice, LDD ratios can be calculated using two different methods: 1) based on the average amount of like property (Equipment Control Class) on hand by count or dollar value or 2) based on comparing a physical inventory to the financial records of the organization.

Acceptable LDD Ratios under this Standard are:

Equipment Control Class (ECC)Acceptable

RatioEquipment Control Class 1 - Consequence of loss of control is a societal safety/security impact, which is characterized by negative societal safety or security impact. Possible examples may include nuclear weapons and devices with sensitive personal Information. 0.00%Equipment Control Class 2 - Consequence of loss of control is a personal safety/security impact which is characterized by negative personal safety or security impact that does not rise to the level of a societal safety or security impact. Possible examples include weapons and contaminated items. 0.50%Equipment Control Class 3 - Consequence of loss of control is an operational impact which is characterized by negative operational impact that does not rise to the level of a personal or societal safety or security impact. Possible examples include computers and manufacturing equipment. This is class that many Property Professionals may consider “normal” level of tracking. 1.00%Equipment Control Class 4 - Consequence of loss of control is a compliance impact which is characterized by negative compliance with applicable laws regulations, or other relevant internal or external guidance that does not rise to the level of an operational impact. Possible examples include office furniture and stationary items. 3.00%


Equipment Control Class 5 - Consequence of loss of control is not discernible, which is characterized by having no visible or recognizable impact on the organizational. Possible examples include staplers and computer mice. n/a

Excessive overages can indicate possible weaknesses in an organization’s receiving and identification processes. The loss or overage rate is calculated as the number or dollar value of missing or found assets divided by the total asset population.

Loss Rate by Number: Number of items not located divided by the Number of Items in Total Population.

Loss Rate by Value: Acquisition Value of items not located divided by the Acquisition Value of items in Total Population.

Overage Rate by Number: Number of item overages divided by the Number of Items in Total Population.

Overage Rate by Value: Acquisition Value of item overages divided by the Acquisition Value of items in Total Population.

In this Standard, the consequences of failure determine the failure tolerance. Consequences to society, person, and organization include the cost and effort to replace the item, lost revenue from the release of sensitive information, lost productivity from the unavailability of an item.


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