The hidden costs of WEEE

Category: Research Articles

The implications of the Waste Electrical and Electronic Equipment (WEEE) Directive seemed to have passed unnoticed by the majority of UK businesses. And why not? The legislation states firmly that the onus of disposal rests with suppliers and distributors.

But endemic poor asset management means this is a burden that will pass directly to the bottom line. With upwards of 10% of assets on the register typically no longer in existence and the lack of component level recording of electrical and electronic assets, businesses will struggle to identify original suppliers and provide a full audit trail through to disposal.

The result will be expensive WEEE compliant disposal, potential fines for failure to provide an audit of asset disposal and attendant negative publicity. WEEE may be touted as a cost for suppliers, but unless organisations can get their asset registers in order, it will also create a significant cost for UK business, insists Karen Conneely, Group Commercial Manager, Real Asset Management.

Supplier Burden

The green bandwagon is rolling strongly across the UK and Europe with politicians of all parties united in their bid to attract the environmentally sensitive voter. Businesses too are keen to publicise their green credentials, from carbon offsetting to the growth in organic goods.

Yet when it comes down to it, such policies have a firm economic footing. Green strategies appeal to voters and consumers alike – but only if the potential cost is viable. Over burden the general public with cost or expectation and it will take more than a picture of an endangered polar bear to reenergise widespread environmental concern.

So it is no surprise that the introduction of the WEEE Directive has been carefully framed to place the responsibility with the suppliers and distributors of electronic and electrical equipment. The directive aims to minimise the impact of electrical and electronic goods on the environment by increasing re-use and recycling and reducing the amount of WEEE going to landfill.

It seeks to achieve this by making producers responsible for financing the collection, treatment and recovery of waste electrical equipment and by obliging distributors to allow consumers to return their waste equipment free of charge.

But such policies assume a level of asset management far beyond that achieved by the majority of UK business. Unless supplying a like for like replacement, suppliers will only remove and dispose of equipment they have delivered in the first place. How many UK businesses can accurately identify the location of their WEEE equipment within the organisation let alone confirm when it was purchased and from whom? Yet without such information, just which company do they expect to handle the disposal for free?

Lost Assets

To be frank, the asset registers of the majority of UK businesses are appalling. In most cases, a full physical audit of goods not only reveals that at least 10% of assets recorded on the register no longer exist but only 40% of the assets on the register can typically be easily identified – the rest have been moved and/or upgraded without any record being made.

This means that on the average 2,000 item asset register, around 200 items have been disposed of but are still recorded as in use. And while this may not matter to the finance team which has already depreciated these assets down to zero so that they have no impact on the balance sheet, it will certainly matter when the organisation is asked to prove the items were disposed of in line with the WEEE Directive.

And the figures are far worse for WEEE equipment. With prices for such equipment currently at an all time low, few individual items reach the typical £1000-£1500 minimum capitalisation threshold, so are not required to be held individually on the asset register. Instead, finance departments opt to consolidate such purchases into one single entry.

Furthermore, most companies typically switch supplier regularly to reflect changes in pricing and availability. Yet while these items are recorded as one bulk purchase they are highly unlikely to be disposed of simultaneously. Equipment breaks, is refurbished and moves locations – information that cannot be recorded without an individual asset number.

So when disposal is due just how is a company going to identify and prove the original supplier? Without such knowledge, the liability will be on the organisation to arrange and pay for WEEE compliant disposal.

Asset Management

The penalties for failure to meet the WEEE Directive are not insignificant. If found guilty of an offence, Producers, Distributors and Operators can be liable to a fine of up to £5,000 per offence on summary conviction in the Magistrates Court or an unlimited fine imposed by the Crown Court. Company Directors and Managers of companies can also be prosecuted, in addition to the company itself, if they consent to, or participate in, the offence, or if their neglect led to the commission of an offence by the company.

If organisations are to avoid the two fold costs of fines and/or expensive WEEE compliant disposal with one of the multiplicity of firms recently set up to support this burgeoning market they need to create an accurate, detailed asset register.

First step has to be a full audit. It is likely that any company conducting a full audit during 2007 to identify missing assets will be given leeway by the authorities. After that date any 'missing' assets will be deemed to have been disposed of without following the proper procedures since the company will have no valid certificate. The Finance Director will be faced with the unpleasant choice of admitting the company has no accurate picture of its own assets or accepting a fine. Neither option will amuse the shareholders.

Once the full physical audit has been conducted, organisations then need to put in place strong procedures for asset disposal. Linking the asset register to a document management system will ensure a scanned WEEE certificate can be linked to a disposed asset, providing the required audit trail. Each asset can be recorded alongside the supplier's name and email address, enabling swift supplier contact when disposal is due.

Critically, the creation of an accurate, up to date asset register can also deliver an immediate return on investment, including a reduction in insurance premiums. Recording the cost of asset disposal will also improve a company's understanding of the total cost of each asset – and the true financial implications of the WEEE Directive.

Compliance Overload

UK business is already complaining about excessive red tape, which is perhaps one of the reasons that the introduction of the WEEE Directive in July 2007 has been so effectively downplayed. But a belief that the onus of WEEE is firmly on equipment suppliers could be an expensive mistake.

There are very many reasons for an organisation to clean up its asset register, but without doubt those organisations that persist in inaccurate and bulk recording of WEEE assets will rapidly discover the true cost of this green initiative.