Hi,
Pull your capital asset register and look at how much of it is fully depreciated. For most public entities the answer is a large share of everything they own. Then notice that all of it is still working.
That gap is the whole problem with how capital assets get treated in government. Depreciation is an accounting allocation. It spreads cost across an assumed life and it says nothing whatsoever about condition. A water main that was fully depreciated in 2009 may have thirty good years left, or it may fail next winter. The register cannot tell you which, and boards routinely read it as though it can, in both directions: “it’s fully depreciated, so we must replace it” and “it’s fully depreciated, so it cost us nothing to keep”.
Underneath that, the register itself is usually wrong, for reasons that accumulate quietly:
- Assets disposed of years ago are still on the books, because nobody told finance when the truck was auctioned
- Assets in service were never capitalized, most often when a project was paid from several funding sources and nobody assembled the total
- The capitalization threshold was set decades ago and never revisited, so the register carries thousands of trivial items while real additions get buried
- Large repairs and betterments are expensed when they extended the asset’s life and should have been capitalized
- Nothing has been reconciled to anything physical in living memory
Two consequences are worth more than the tidiness of the ledger.
You cannot defend a rate increase or a bond issue with a register nobody trusts. When a utility board, a ratepayer group or a bond counsel asks what condition the system is in and what replacement will cost, depreciation schedules are not an answer. A capital plan grounded in asset age, condition and expected replacement is.
And if federal money bought any of it, there are rules you are probably not following. Equipment acquired with federal funds has to be tracked with specific detail, physically inventoried at least once every two years with the results reconciled to the records, protected against loss, and disposed of according to federal rules when you are done with it. Almost no entity does that inventory on schedule, and it is a straightforward finding when the auditor asks for it.
The way through is unglamorous and finite:
- Reconcile the register to reality once. Walk the yard, the fleet list and the facilities. Remove what is gone, add what is missing.
- Revisit the capitalization threshold so the register tracks things that matter
- Record condition, not just cost, at least for infrastructure and major facilities, so the asset data supports planning rather than only reporting
- Do the federal equipment inventory and diarise the next one
- Write the disposal step into your process, so finance hears about it when an asset leaves
This is work we take on directly:
- Capital asset register reconciliation, capitalization policy review and infrastructure reporting
- Federal equipment tracking and inventory requirements under Uniform Guidance
- Audit, Single Audit and Yellow Book engagements, ACFR and AFR preparation
- Fund accounting bookkeeping, grant compliance and board or council ready reporting
Reply to this email by Friday and we will set up a free 15-minute call with one of our senior government specialists. Tell us when your capital asset register was last reconciled to something physical, and we will tell you on the call what it is most likely hiding in both directions.
Sincerely,
—
George Dimov, CPA
Licensed and Insured
(833) 829-1120 toll free
(212) 994-8081 Fax
www.dimovtax.com