Fixed Asset Management (“FAM”) Presentation to: Community College Internal Auditors May 6, 2015

1. Fixed Asset Management (“FAM”) Presentation to: Community College Internal Auditors May 6, 2015 Paul S. Chaben American Appraisal, A Division of Duff & Phelps 248-396-3975 pchaben@american-appraisal.com

2. AGENDA • Data Observations • Importance of Tracking Fixed Assets • Fundamentals of Tracking Fixed Assets • Questions and Answers

3. Industry Observations Research published by the not-for-profit Information Integrity Coalition, an organization that promotes the awareness and understanding of information integrity, has estimated that the pervasive lack of information integrity “costs the economy hundreds of billions of dollars.” The TDWI estimates that poor quality customer data costs U. S. businesses $611 billion a year in operating expenses and overhead. The most serious problems of all occur when poor quality data is used to report financials or to make strategic business planning decisions.

4. Real Fixed Asset Data Observations • Un-booked retirements (Ghost Assets) typically range 10% - 30% of gross book value • Key data elements such as make, model #, mfg, serial #, description, asset classification, are incomplete and inaccurate over 65% of the time • Bulk line items creates significant difficulty for booking partial retirements and transfers. • Generic Descriptions (e.g. “Machinery”; “Project Expenditures”) and lack of detail inhibit ongoing efforts to cycle audit the assets and analyze ROI. • Human Error/Indifference (or lack of incentive)

5. Bottom Line • Exposure to higher financial and operational costs and compliance penalties is a result of rampant “data visibility” problems • Overpaying of Personal Property and Federal Tax • Overpaying Insurance • More Difficult Cycle Audit Efforts • Increased time for Capital Budgeting/Forecasting • Inability to optimally utilize assets • Inability to implement Enterprise-wide Asset Management • Financial compliance confidence (significant deficiencies and material weaknesses)? • Accuracy of Fund Accounting

6. The Fundamental Questions Is it a good investment for the organization (EVA objective)? What assets do we own (or lease, or have acquired)? Where are our assets? Are assets being utilized optimally? What do they cost us? How can you answer these questions... …without validated and uniform asset data? 6

7. Improving Competitive Position • Lower Costs (e.g. property tax, insurance) • Maximize Capital Investment Strategy • Deploy Less Capital • Drive EVA / RONA up • Leveraging Asset Information for a Business Advantage • Eliminate risk in financial/regulatory compliance Ability to Make Strategic Capital Investment Decisions High 97% Quality of Decisions Low High Data Integrity 7

8. FAM Best Practices • Baseline / Cyclical Inventory / Tagging • Tremendous technological advances (POS systems) and industry standards (e.g. UPC; SKU) to drive efficiencies and manage inventory. Despite these controls, the norm is to perform annual product inventories in order to continue to true-up the data in the system for financial accuracy. • Capturing Asset Events • Additions • Moves and Changes (stewardship) • End-of-Life • People, Processes, and Systems A properly designed fixed asset management program can help a higher education institution meet external audit and regulatory standards and can also be extremely beneficial in meeting capital budgeting and financial /risk management reporting requirements.

9. Fixed Asset System (Database) Policies requiring FAM usually do not provide approved “Best Practices” or success measurements Asset Events Benefits 1. Procurement / Tagging 2. Moves/Changes 3. Retirement Record Events Decision Support • Personal Property Tax Savings 2. Financial Compliance 3. Surplus/Idle Asset-Early Identification 4. Drive Efficiencies for Cyclical Audits 6. Accurate Fund Accounting 7. Maintenance/Warranty Linked to FAR 8. Improved Capital Budgeting/Forecasting • Reduced Insurance Costs 10. Building Componentization Fixed Asset System Assets • M&E • F&F • IT • Real Property • Other Data • Financial • Asset Tracking • Location/Cost Center 9

10. FAM - 9 Actions that Work • Secure an executive sponsor. • Involve the stakeholders up-front during the foundational stage. • DO NOT ask them for requirements – THAT OFTEN BACKFIRES. • Make them active participants of the ITAM definition process. • Take the time to fully discover how things are done today. • Sets the baseline process. • Response is better if you know the current landscape and only make a few necessary changes.

11. FAM - 9 Actions that Work • When making process changes, put in changes that will work. • Must be “lite” - Cannot be overly burdensome or people will simply ignore. • When capturing data – design capture as close in time and place as possible. • Validate the process changes. • Take the time to engage the various people who have to perform these new processes …. while the processes are being created. • Get their feedback and make them feel like they’ve been heard and that their concerns have been addressed.

12. FAM - 9 Actions that Work • Make friends with internal audit • Use them to help you drive compliance. • Establish a MARCOM (Marketing / Communications) program • Define your target audiences, messaging, delivery channels, and timing.

13. FAM - 9 Actions that Work • Establish success metrics. • Do this up front. • Tells the executives • Focus on hitting those success metrics as you go live and communicate those measurements at executive level to ensure they know that the program is delivering as expected.

14. Questions and Answers Paul S. Chaben American Appraisal, A Division of Duff & Phelps 248-396-3975 pchaben@american-appraisal.com