The purposes of this article, capital assets are defined as tangible or intangible assets that are used in operations and that have useful lives of more than one year, such as land and improvements to land, buildings and building improvements; vehicles; machinery; equipment; and sewer, water and highway infrastructures.

Risk Assessment:

A municipalitys capital assets are subject to a number of risks. Local officials must be cognizant of these risks as they seek to effectively manage their municipalitys capital assets. By identifying the associated risks, officials can develop strategies to manage those risks and ensure that capital assets are adequately protected. Municipal capital assets are subject to risks of loss, misuse, and/or obsolescence. These risks will vary depending on the nature of the assets involved. For example, computer equipment is generally at a greater risk of obsolescence or loss through theft than a bulldozer or a building. Misuse may be more likely to occur with those capital assets that can be used for other than municipal purposes, such as vehicles and computers. Local managers should assess the significance and likelihood of all of the risks threatening capital assets. Significance should be assessed in terms of dollar amounts, operational importance, and public perception. Considerations of likelihood should address issues such as the nature and function of each asset (see examples cited above). Managers must then decide how best to address any significant and likely risks. The costs of each potentially mitigating action should be weighed against the benefits.

Asset Protection:

Policies:

First and foremost, local managers should see to it that municipal capital assets are adequately protected from loss or misuse. A good way to accomplish this is through the development of a comprehensive policy that addresses this issue. Such a policy could also address capital asset maintenance and performance. A written policy, adopted by the governing board, should communicate managements objectives. The policy should spell out the duties, records, and procedures required to achieve these objectives. It should set general procedures and overall requirements for protecting the municipalitys capital assets. (See our Local Government Management Guide entitled The Practice of Internal Controls.) Subject to statutory requirements, the policy should establish the minimum value of assets to be tracked for departmental inventory control. It should also establish thresholds for financial reporting purposes. Essentially, a fixed asset policy should address each of the components contained within this section.

Property Control Manager:

One person (the property control manager) should be responsible for tracking the capital assets of the local government and for the accuracy and usefulness of the asset records. Subject to the approval of the governing board, this person should set the detailed procedures with respect to capital asset protection. These procedures should be in writing and should be distributed to the people who will be involved in the control and inventory of assets to ensure the accuracy of detailed records and proper accountability for assets. The manager is also responsible for the design and distribution of the documents to be used to record assets and for properly explaining these documents to the people who will use them. Both the initial and subsequent physical inventories are the responsibility of the property control manager. The governing board should designate a staff person as the property control manager. Generally, this is less than a full-time position and the designated individual could perform other duties. For internal control purposes, the person in charge of the property records should not have access to the property/assets. Departmental capital asset custodians should also be designated. Usually, department heads are designated as departmental custodians with the provision that they may appoint someone to act for them.

Property Records:

Capital asset protection begins with quality record keeping. Detailed property records help establish accountability and allow for the development of additional controls and safeguards. The accuracy and completeness of these records can also impact the various costs (insurance, replacement, etc.) associated with owning capital assets. For these reasons, capital asset accounts must be complete, accurate, and up-to-date. The focal point of capital asset accounting is the individual property record. Each piece of property meeting the criteria for inclusion in the capital asset inventory should be adequately described in these property records. These records take various forms and contain a variety of data. All property records should be maintained by the property control officer. Generally, there are two types of records: the real property record and the personal property record. Appendix A contains links to sample records for a manual system. Similar information should be recorded in a computer system.

Real property records contain substantial information about land and buildings. Among the items of information may be a small diagram showing the location of any building, a deed description, and a picture of the property. Other data should include the date of purchase, the price, the assessed and appraised values, and the department using the property. It is also a good practice to use an envelope folder for each property to file original documents, such as the deed, the governing boards resolution authorizing the acquisition of the land and/or buildings, condemnation papers, correspondence, and all other documents relating to the individual land and/ or buildings.

Personal property records are maintained for each piece of personal property that exceeds the minimum value set by the governing board. Examples of personal property include a truck, computer, and copier. Sufficient information must be on the property records to identify the item such as a description of the item, including make, model, and serial numbers, the assigned identification number (when appropriate), the purchase date, amount, vendor and voucher number, the department having custody and the location within the department; and the source of funds used to purchase the item and any adjustments to the initial cost.

Similar lower-priced items, such as file cabinets, can be accounted for as a group, with total costs and inventories recorded on a single record. If part of the cost of an item is financed by a trade-in, the gross amount, not the net expenditure, should be shown. When an item has been disposed of, that fact should be reflected on the record. The record could also provide space to record depreciation and/or the loss in service value of the asset due to wear and tear and obsolescence. This is useful information for managers when dealing with asset maintenance and/or replacement. Additionally, should a capital asset appreciate in value, the property manager may want to note this fact. Among other things, this information will be useful in determining insurance coverage. Alternatively, capital asset record-keeping can be made easier by using current technology such as video cameras, digital cameras, document scanners, computers, barcode technology, and other tools. In larger municipalities, computerized record-keeping is especially valuable for tracking capital asset inventories. Individual records of large and ever-changing inventories can be updated through a simple database query. Also, this type of perpetual inventory system provides improved control over capital assets by establishing timely accountability.

Accountability:

Any accounting system is only as good as the information it contains. To be of value, property records (and related control accounts) must contain a complete and accurate account of the capital assets owned by the municipality. Accurately recording each asset establishes accountability that, in turn, provides a foundation for creating additional safeguards. A physical inventory is the only way to establish initial accountability. Such an inventory is required when establishing a capital assets accounting system and periodically thereafter to ensure the systems continued accuracy. Taking an inventory involves making a physical inspection or otherwise ascertaining the existence of capital assets and listing them in some systematic manner.

Answer the following questions based on the above information.

What are the main ideas/issues identified in the article?

How are the ideas/issues that affect you, your family, and other citizens?

What challenges have come up in your mind from the ideas and information presented?