Establishing Internal Controls for Fixed Assets Management

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Fixed Assets Management

If you’re reading this article, you are probably challenged with how to effectively manage your fixed assets. To help you, we created a fixed assets management framework where the guidelines are broken down into sequential steps. Each step aims to address the common challenges when dealing with fixed assets. (Related: Challenges and Benefits of Fixed Asset Management)

1. Create a database of your fixed assets.

The first step will be to list down all of your assets. Recording should start at the time of acquisition or when they become a resource that the company controls. In the database, you can insert some descriptions about their conditions and estimated useful lives.

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Remember that the database serves as a complete record of all the fixed assets under the firm’s control. By ensuring that the database is accurate and up-to-date, we also prevent ghost assets and potential fraud from arising.

2. Identify which assets need to be tracked.

You will soon realize that as far as fixed asset management is concerned, there are just too many assets to be monitored all the time. If we were to keep track of everything, we might end up spending even more than the assets’ actual worth.

One way to streamline the process will be to assess them based on their long-term importance. You can look at their monetary value and set a minimum threshold before an asset is even monitored. For example, only assets worth P10,000 and above will be tracked. You can also evaluate them based on the criticality of their functions in the company’s ongoing operations. Another way will be to consider if they are in fact mandated by the government to be tracked or if there are certain internal or external compliance requirements that necessitates accurate or even real-time tracking.

3. Create a unique tracking ID for each fixed asset.

One of the common challenges faced by firms is the overlaps in the IDs of fixed assets. For example, it is a company’s practice to track a laptop based on its brand and model. It becomes hard to differentiate between several laptops of the same brand and model if this is the only information recorded. A better approach will be to assign a unique tracking ID to each asset to facilitate a more effective asset management.

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4. Determine parties responsible for monitoring each critical fixed asset.

At this point, you should have filtered out those assets that are perceived to be immaterial or not relevant enough to be monitored. The next step is to determine who we will hold accountable for each of the fixed assets to be tracked. This can be a specific person or even a department or team depending on what is applicable.

By assigning responsibility, we prevent unauthorized movement of the fixed assets or even careless handling of the assets. We achieve this because the assigned personnel is aware that if anything happens to the asset, the company can go after them.

5. Conduct regular physical counts for fixed assets management purposes.

One way to ensure that the assets are still there and still in their expected condition will be to conduct regular physical counts. This can be done by the assigned party responsible for the asset. The idea is to make sure that what is on the records in fact matches with the actual counts.

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6. Schedule periodic audits.

Lastly, it is recommended to schedule periodic audits. The regular physical counts provide assurance already that the fixed assets are there but sometimes, if we have a new set of eyes investigating, some concerns and red flags may still arise that were not detected earlier.

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Money Monkeys

Money Monkeys seeks to educate on topics related to finance, entrepreneurship, and the rising fintech innovations. We provide easy to digest articles with the aim of raising financial literacy, cultivating a growth mindset, and harnessing the spirits of fellow entrepreneurs.

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