How to Avoid Accumulation of Ghost Assets in Your Business?

Ghost Assets?

What are they? What do they do?

How to recognize them?

What are they capable of?

These are the few questions that might be coming in your mind right now, hearing of Ghost Assets.

That too, not Ghosts, it is Ghost assets! Ghost Assets in Your Business!

Yeah, you read it right, Ghost Assets in your business. They are not present in your business, but they do exist. Yes, it is confusing.

Let us start with the initial and basic point.

What are Ghost Assets?

Trust me, you are alone if you don't know about Ghost assets. They are common but not so common to know.

Any fixed asset that exists in the accounting ledger but because their physical (or digital) unavailability they can't be recorded and are loudly known as the ghost assets.

These fixed assets were procured but could not be attained at the time of its depreciation as their status is either lost, stolen or unusable.

In other words, Ghost assets are defined as the assets that are lost, stolen, or unusable but is still shown active on your fixed asset register.  

Other reasons for the existence of ghost assets may be unrecorded trade-ins, use of existing machine parts to repair the broken units, shifting or rearrangement of the factory where these assets were scrapped thinking as unneeded assets.  

Beyond all this matter of disappearing or fully depreciating asset or falling out of use, ghost assets will still be counted towards the company's tax and insurance liability.

Also Read: Importance of Inventory Management in Healthcare Industry

What is the Accounting cost of these Ghost Assets?

Almost in all organizations, fixed assets represent their bulk investments and are prominent in their balance sheet.

The insurance premiums and the organization's tax liability will be inflated unnecessarily. Capital budgeting and financial reporting will also get inaccurate.  

• Overpaying of taxes  
• Increased insurance premiums  
• Inaccurate fixed asset reporting affecting regulatory compliance  
• Inability to forecast Capital Expenditure accurately

What are the Impacts of Ghost Assets?

1. Excessive tax liability:

Your inventory is actually taxable, if you have too many ghost assets then, you are misrepresenting your inventory.

Similarly, you will calculate your taxes amount from these inventories which will be significantly overpaying for you.

2. Increased insurance premium:

Ghost assets are the fixed assets that remain unused for you. But the insurance company doesn't have to do to anything with that and so will charge and claim for everything coming under business insurance coverage.

3. Preventing maintenance fees:

You must have procured the ghost assets, but you don't own them and paying for its maintenance will put your heart in your mouth.

The maintenance fees of ghost assets will cost you more when you will be charged to maintain them, but you no longer own them. For example, an office printer that no longer exists in the building.

4. Employee theft:

If you do not keep an accurate record of your assets, in this environment some of the employees start to show their unethical behaviour towards the organization's property.

They might start to steal business assets because they know for a fact that they won't get discovered, at least till few months or a year when you will sit to get your ledger under control.

5. Higher expenditure:

All the physical assets in your organization can lose its quality over the period of time, where they will need maintenance.

When these assets will account for maintenance in fixed asset ledger but physically, they are absent from their root location.

This condition will lead the organization to depreciate the asset and moreover will replace it entirely; leading to excess expenditure.

6. Decreased productivity:

It doesn't seem that the ghost assets can decrease productivity, but the bitter truth is they can reduce productivity as well as the efficiency of the organization.

For example, if an employee is unable to perform a certain task due to the assets that are marked available but are physically absent.

Through the marked availability of the asset which is of no use to the employee who needs it right away.

7. Compliance concern:

Your negligence in keeping a record of assets like what assets do you own, which are available and which are missing. This can subject to a variety of compliance issues in and around your industry.

8. Misleading financial statements:

An asset that is missing definitely includes in the compliance of an organization's balance sheet and finance, affecting its overall impact.  

The inaccuracy in your balance sheet, statements, and financial reports will create a difficult situation in the development of capital expenditure projections and budget for future years.

Also Read: What are the steps involved in the Incident Management Process?

How to eliminate Ghost Assets?

1. Get the right asset tracking software:

The disconnect between the multiple areas of an organization is one of the main reasons responsible for the appearance of ghost assets. Changes made in one department of the organization is not always reflected in the other department.

If the changes are updated, changes are not made in real-time which will include the signed copy of data.

The right asset tracking and management software can help the organization to prevent the disconnect between the internal departments and establish a centralized asset register that will be accessible to all the areas in a single view.

2. Tagging and tracking assets:

Techniques like barcode, RFID, NFC can efficiently increase the tracking accuracy with reduced required time for tracking and audits in a large organization.

Tagging of each asset will ensure that every asset will be individually identified even if the organization has several similar assets.

Through a unique identifier, you can track individual assets across their full life cycle from procurement to its disposal and preventing the appearance of ghost assets.

3. Fixed asset audits:

Auditing fixed assets are extremely important to ensure that accounting of assets and depreciation follows management's objective along with an integrated real-time asset register to conduct audits on a regular basis.

The best method for each organization depends on the factors of the available personnel and resources.

What are the benefits of removing Ghost Assets?

Removal of ghost assets will help your business in the following ways:  

• Appropriate insurance cover to the assets  
• Cost-effective annual updates
• Accurate accounting of assets for financial reporting
• Improved budgeting for future capital expenditure
• Identifies tax saving opportunities
• Reduces insurance premiums  
• Identifies and eliminates non-existent assets and optimizes return-on-asset ratios

Also Read: 7 Advantages of Computerized Maintenance Management Software (CMMS)

Conclusion:

The problems that surround you because of ghost assets, don't have to haunt your business.  

A proper instated asset management solution will help you deal with your ghost assets and will verify the number of fixed assets you actually have.  

Asset Infinity provides you with the asset tracking and management solution to assist you in your maintenance and record-keeping of your assets.  

You can take advantage of Asset Infinity's 14-day trial.