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The periodic fixed asset inventory process can be one of the hardest requirements to complete for an organization. As resources become increasingly more limited, it is critical to understand the inherent benefits and challenges of each so you can determine which option is right for you. In this post, we’ll explore 3 different methods for inventorying fixed assets and what differentiates one from another.
The differences between centralized, decentralized, and outsourced inventory processes:
Utilizing a Centralized Inventory Process
Utilizing a central inventory staff allows your institution to have complete control over the process.
With this approach, staff in Property Control, Accounting, Purchasing, or Research Administration are responsible for verifying assets for your institution.
Things to consider:
- The cost of centralized inventory staff to the administration can be very high without proper oversight.
- In most cases, inventory is one of many responsibilities in their job description, so centralized staff are often spread thin.
- End-to-end, the central approach typically takes the longest to perform as it utilizes the least amount of people in the process.
- This can be the most “comfortable” of options as familiar staff are locating equipment they have seen before, minimizing interruptions in the field.
Utilizing a Decentralized Inventory Process
Utilizing a decentralized inventory process allows your institution to perform an inventory leveraging resources of your department, cost center, or location managers in finding their own equipment. The idea here is that a project lead helps navigate the process for key stakeholders, and your staff collaborates to help you locate your assets.
Things to consider:
- In theory, this approach should consume the least amount of resources from accounting or property control as it leverages small amounts of time from departments which aggregates a larger effort of the organization. It can take the most time overall if not properly run by the internal project manager.
- Spreadsheets are not advisable in this method as it may take as much time to consolidate the data as it does for the centralized team to go out and do it for you.
- Staff turnover as well as large gaps in time between inventory cycles (up to two years) can require training sessions each time the department is tasked with the inventory update.
- The direct cost to the administration is the least of the 3 methods but it also may be the hardest to manage without the right software platform.
- If not requiring departmental staff or users of the equipment to properly verify by a combination of asset ID, location, serial number, or other auditable methods, then you could be in trouble. The old methodology of “pencil-whipping” your inventory just doesn’t work anymore.
Utilizing an Outsourced Inventory Process
Utilizing an independent third party for your inventory verification can be the best method–but only if you choose the right partner.
The third party provides an independent review that will meet audit standards and significantly reduce audit risk.
Things to consider:
- Experienced firms are capable of sharing best practices found across peer institutions. Their primary goal is to provide the most accurate data setback to you as possible and allow you to continue on your own if that’s your objective.
- First-year inventories may not yield the expected results. Most times, there are years of bad data provided to the accounting or controller’s department which compounds annually, especially if the inventory function has been decentralized in the past.
- Because an experienced third party will put a team on the ground, this is the fastest method to complete your fixed asset inventory.
- The right partner will assist in cleaning up your field data and correcting asset values to import back to your ERP system. Experienced consultants will assist you with the identification of possible asset additions not recorded in your asset ledger, as well as the identification of ghost assets.
- If there are audit findings that need to be addressed, this is the most efficient way to correct your deficiencies and have audit support
Our goal is to help clarify which of these options is right for your organization. If we can help with determining which is right for you, please reach out to us any time.