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Tracking your capital assets more rigorously will not only help to reduce audit exposure but give you greater control over your largest assets.

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Three Ways to Better Monitor Capital Assets in State and Local Governments

  • Eric Miller
  • 3/12/2019

For most state and local governments, non-depreciable and depreciable capital assets are the largest singular asset balance on your financial statements.

When capital assets aren’t properly recorded and account balances are left unmonitored, you can lose control of this critical financial and operational component and expose your organization to audit issues. Tracking your capital assets more rigorously will not only help to reduce that exposure but give you better control over your largest assets.

In many cases, a monthly reconciliation is performed related to bank reconciliations and investment statements, and there is constant monitoring of cash deposits and outstanding accounts receivable balances, but an ongoing reconciliation and monitoring of capital assets are still not performed. Usually a reconciliation is performed only once a year — and very often at the last minute in preparation for the annual audit.

A thoughtful, documented protocol for tracking capital assets, however, can help to ensure this large asset balance is consistently monitored. Here are three ways your government organization can more effectively track capital assets.

Implement a monthly regimen for reconciliation

Capital asset purchases take place regularly throughout an organization’s fiscal year. Identifying and ensuring all capital-related purchases are recorded in the correct general ledger account will help you to consistently monitor these transactions.

For governmental funds, maintain a subsidiary capital asset ledger for capital purchases. Set up specific accounts to record capital purchases so that they are accurately recorded and are not commingled with other disbursements. This will help facilitate your reconciliation between capital additions and other expenditures.

Also perform a reconciliation of your capital purchases, just as you would a monthly cash reconciliation. Reconciliations are performed for all other balance sheet accounts, so why not implement a monthly procedure and reconcile your capital assets to the general ledger during month close?

Include all departments in monitoring capital assets

A well-defined, organization-wide process can instill the importance of monitoring your capital assets across all departments. This could include a comprehensive report for departments to document all newly acquired assets on a monthly basis. The process culminates with your finance department disseminating the information during month close and accurately recording the activity within your general ledger.

Be sure to create a plan for the disposing of assets. Train all departments to understand and follow the proper procedures to ensure all assets no longer in service are accurately removed from the capital asset listing. At a minimum of once a year, perform an inventory of your capital assets and verify whether specific assets still exist and are being utilized.

Develop capital planning policies

Your governmental organization should have some type of a capital planning policy in place prior to performing capital budgeting. Factors to consider in your capital planning policy should include:

  • Accounting, maintenance, and replacement of capital assets
  • Flow chart illustrating employee roles in the capital planning process
  • Outline of significant future capital projects within an established long-range financial plan
  • Description of how your organization will monitor and management capital asset lives vs. debt issuance in terms of funding strategies

How we can help

It is imperative that your organization monitors its capital assets and recognizes that this is never a static process. CLA’s state and local government professionals can help you know and understand your organization’s capital needs so you can make informed decisions about future capital projects. We can help you design and execute a capital asset tracking system that keeps this critical information top of mind.