And despite admitting poor processes and a reliance on personal knowledge to determine asset location, most organisations’ awareness of the quality and accuracy of asset information is woefully inadequate. The majority believe the asset register to be, at worst, 5% inaccurate. They are shocked when a physical audit reveals just how badly the asset register has been maintained.
On average, physical assessment reveals only 40% of assets are well described on the register and can be easily found; a further 40 – 50% probably exist but are so poorly described it is impossible to prove and the remaining 10 – 20% are well described but cannot be found, indicating they no longer exist.
This means that, on average, by basing insurance requests on the asset register, organisations are over insuring by upwards of 20% - a significant cost that any Financial Director would be keen to reclaim. Yet, unfortunately for most companies the accuracy - or lack of it - of the asset register is a low priority. Finance teams often regard the issue as self-resolving: the majority of the assets no longer actually in use have already been depreciated down to zero, so there is no impact on corporate value.
And the impact only appears when a claim is made and then challenged by the insurance assessor due to the obvious inaccuracy of the register. In the worst case scenarios where assets have been moved en masse from one location to another – and the move not recorded in the system – the insurance company will simply refuse to pay out. While companies can perhaps cover the cost of replacing office furniture, losing payment on a network server or two would be far from ideal.
Yet in reality, the ease with which holes can be punched in the majority of asset registers should be a major concern not just to Financial Directors currently paying over the odds on insurance but also internal auditors. The asset register has a significant effect on company value, especially in industries such as manufacturing. By failing to ensure the asset register is up to date, internal auditors are not undertaking the required corporate due diligence.
The costs are minimal to undertake a full physical audit on assets that could be worth up to £100 million. Combine this one-off event with sound processes for keeping the register up to date and an organisation can reduce its insurance premiums and ensure any claims are rapidly processed.
Can your organisation really afford not to take asset value seriously?