Archive for Thought Leadership

How Green are Green Businesses? - Part Two

Visibly Green
Corporate transparency will become absolutely essential to provide regulatory reporting and deliver highly visible environmental policies - from ethical sourcing of products and services to regular asset maintenance to ensure optimum performance and minimum carbon emissions.

According to Gartner’s Top Predictions for IT Organizations and Users, 2008 and Beyond: Going Green and Self-Healing, by 2010, 75% of organizations will use full lifecycle energy and CO2 footprint as mandatory PC hardware buying criteria. As a result, the IT analyst group expects that most technology suppliers will start some level of more detailed lifecycle assessment during 2008. The area of carbon accounting, tracking and product labeling (beyond IT) will explode over the next two years.

In the short term, this process will be complex, oversimplified and crude and it will lack standards, creating a limited impact until at least 2010. However, Gartner believes, regardless of the lack of appropriate standards and common metrics, enterprises will demand the information.

However, to be used effectively, organizations need a clear and coherent method of recording, measuring and reporting on the lifecycle of each asset, particularly on energy consumed during manufacturing and distribution processes, and used for IT equipment.

The Ethical Asset Register
This could prove to be a major stumbling block for organizations. Currently, the majority of companies do not even accurately record the number and location of assets, let along their purchasing and maintenance history. In a recent survey of 300 data center managers, over a quarter of respondents did not know how many servers were under their control and more than 40% found they had servers they did not know they had or had looked for one only to find it had been retired.

And this problem is far from limited to the IT asset register. Physical audits of the asset base typically reveal that less than 40% of the assets on the register are easily identified and an estimated 10% are no longer in existence. The problem is often made worse because of varying asset tracking strategies and consistently poor record keeping.

With each department typically recording asset information differently - often on spreadsheets or even paper files - there are no common asset definitions. There is rarely any integration with maintenance, resulting in highly inaccurate information on the replacement of component parts, and few organizations even bother to record the movement of assets around or between buildings.

With this fragmented approach, organizations have no way of accurately and consistently recording or reporting on the key information required to support CSR strategies - from knowing an asset’s country of origin, to how the product was made, what materials it is made from, maintenance schedules and final, environmentally ethical, disposal.

Accurate records will also ensure that an asset’s life is as long as possible. Companies with a loose grasp on which assets are ready for disposal are far more likely to dispose of assets prematurely which can in turn impact the environment through unnecessary waste and recycling. In addition to this, any changes to the value of an asset throughout its lifecycle should always be reflected financially within the business allowing for correct calculation of depreciation. Failure to do this simply undermines business value.

Without a consistent, corporation-wide approach to recording comprehensive fixed asset information, organizations will not be able to accurately report on their asset performance, whether for fiscal or for environmental concerns such as carbon emissions and recycling figures. It is only by capturing increasing detail about an asset’s lifecycle that organizations can begin to provide the corporate visibility required to underpin CSR strategies.

How Green are Green Businesses? - Part One

Calling Time-Out on Greenwashing
Every organization is under increasing pressure from clients, employees, shareholders and the government to be more environmentally aware and become better stewards of our natural resources. But the green bandwagon has proved too tempting for some organizations looking to boost their image with certain audiences via headline-grabbing policies that often amount to little more than a statement. Unfortunately, these and many other businesses have a long way to go before they achieve tangible change.

We’ve all heard these generic statements about green strategies - from procurement to recycling, carbon footprint to flexible working - but they won’t suffice in the long term: Organizations will have to prove their commitment through information transparency and auditable policies.

At the heart of such transparency will be consistent, detailed information about the life of every asset - from its country of origin through maintenance schedules to final disposal. An ethical asset register is becoming a critical tool in proving strategic commitment to environmental strategies, argues Marcus Scholes, Vice President of U.S. Operations for Real Asset Management International (RAMI).

Greenwashing?
Ethical statements and a corporate commitment to a green agenda are becoming a standard component of many U.S. businesses. Organizations are increasingly responding to demands from clients for ethically sourced and produced goods and from employees for environmentally aware policies, with clearly defined Corporate Social Responsibility (CSR) strategies that have a firm focus on sustainability and reducing the carbon footprint.

There is also a growing recognition of the bottom line impact of the corporate green movement. Investments in ‘Ethical Funds’ have grown rapidly across the U.S. and abroad and, as a result, an organization’s FTSE4Good rating has become an important consideration. FTSE4Good is a series of indices created by FTSE, a jointly owned subsidiary of the London Stock Exchange and the Financial Times, and a world-wide expert in the creation and management of equity indexes. The FTSE4Good series provides independent measures of social and environmental performance for the growing number of individuals, analysts and fund managers who are becoming increasingly aware of the potential links between such factors and financial performance. 

But what is the basis for these new policies and statements of sustainability and environmental concern? Are these statements based on intangible, provable policies or, as an increasingly cynical consumer base suspects, simply “greenwash?” While CSR strategies may grab a few headlines today, the potential negative impact both financially and for the organization’s reputation could be significant should these statements be proven to be overly optimistic or incorrect.

And while such strategies are currently a corporate choice, there are growing indications that in the not so distant future organizations will have to prove the true implications of environmental policies to government regulatory entities or watchdog groups.

Bracing a Business for Recession - Part Three

An automated fixed asset management system can also help streamline workflow processes, according to Scholes, since many companies keep multiple asset logs, depending upon the type of asset and the division of the business that is tracking it, such as accounting, IT or maintenance. “Without a consolidated asset management system, these asset registers end up having conflicting and often contradictory information. A unified asset management system offers a more streamlined approach – one asset register – that provides customizable/user-defined dashboards that show each user and department the information and reporting options they need. It also helps reduce inconsistencies and wasted staff time that often causes businesses to run lean.”

Such systems also allow for advanced forecasting and budgeting. “Simply rolling over depreciation year-to-year is a blunt instrument and it can give management only a very rough summary of potential data with no allowance for other changes,” said Scholes. But when using an automated asset management system, financial directors can produce much more accurate forecasts that can take into account variables such as asset disposals, planned investments and the effects of specific actions on financials and future tax liabilities.

Another benefit of having an accurate asset register is the ability to quickly determine asset losses for insurance claims in the case of disaster, while also enabling the company to track the location and determine the condition of potentially affected items that need to be re-evaluated or disposed of. “Incorrect or non-specific asset registers can result in painstakingly long hours spent reconstructing and re-auditing asset bases at a time when the business’ resources need to be focused on recovery,” according to Scholes.

Both Tecklenburg and Scholes agree that an organization’s fixed assets are critical to its fiscal health, but unfortunately, these items are frequently managed ineffectively, potentially costing a business hundreds of thousands of dollars a year.

That’s where Scholes sees that a consolidated asset management system can offer multiple methods to decrease near-term expenditures, which can aid a business looking to strengthen itself in the face of a possible recession. “Responsible asset management also provides more accurate financials and forecasting capabilities and gives an organization’s management and shareholders a more realistic overview of the true fiscal health of the enterprise. This, in turn, creates more responsible corporate governance and can increase investor faith.”

Bracing a Business for Recession - Part Two

Among the key short-term benefits of improved asset control is a potentially dramatic decrease in insurance premiums and property taxes. After performing thorough asset audits, Scholes said that RAMI’s customers have found that up to 20 percent of assets listed on an organization’s asset register are no longer in existence. Accordingly, their premiums may be considerably higher than they need to be and the company may be paying tens of thousands of dollars in property taxes on items that they no longer have. Poor asset descriptions and identification can also lead to denied insurance claims.

Tax depreciation strategies can also make a big impact on a company’s financials, Scholes noted. Taking advantage of tax treatments designed to help recoup some of the costs of infrastructure is essential to sound financial management, but can be a challenge with ever-chaning tax laws and the need to keep multiple books for state, federal, corporate and other purposes. Add to this the special tax treatments for particular items and organizations and it is nearly impossible to keep appropriate asset registers unless an automated system is used. Without such a system, not only are asset locations, descriptions and values likely to be incorrect, but the company is also likely to be missing out on strategies that could reduce its tax liabilities.

This is especially pertinent right now, according to professor Tecklenburg, since the new economic stimulus package that will be sending $600 checks to individuals also provides businesses with bonus depreciation for capital expenses. Bonus depreciation offers businesses an extra one-year boost in the amount they can deduct on capital expenses. Under this stimulus package, first year depreciation on capital equipment (purchased in 2008) has been increased to 50 percent of the original purchase cost, with a maximim of $250,000 write-off for companies with up to $800,000 on annual revenues. The remaining 50 percent will be depreciated over a business’ normal depreciation schedule. The Economic Stimulus Package of 2008 allows for similar bonus depreciation rules to those put in place following September 11, 2001, and in 2004 and 2005.

Bracing a Business for Recession - Part One

With Financial Indicators Pointing Down, Technology Offers Ways to Improve Finances

Economic forecasts are increasingly pointing toward recession, a prospect not missed by executive management teams and the boards of many private and public entities who are exploring ways to proactively strengthen their financial positions in order to ride out the economic downturn. Among the strategies many of these organizations are taking is a move to more accurate and effective fixed asset management.

According to Don Tecklenburg, a Certified Public Accountant and assistant professor of accounting at Ohio Wesleyan University, proper asset management is a critical element of corporate accounting and responsibility, and the lack of it can put a business at risk.

“Fixed assets are often one of the largest line items on a company’s financials, yet they are often too loosely tracked,” he said. “Knowing where your assets are, what condition they are in, and having accurate descriptions of them, is crucial to not only tax depreciation strategies, but also to replacement cycles that, if not followed, can lead to down-time. This is true whether the assets are tech devices like computers and servers, production-focused equipment, vehicles or buildings.”

As a former chief financial officer at several private universities, Tecklenburg
knows not only the risks of poor management, but also the inherent challenges of keeping up with potentially thousands of items. “Financial managers often find themselves mired in a combination of spreadsheets and programs, but newer technologies have greatly improved asset management, providing not only proper compliance, but also instant reporting and analysis, automated depreciation calculations and planning tools.”

Marcus Scholes agrees. The vice president of U.S. operations for Real Asset Management International (RAMI) also sees that improved asset management can actually help strengthen a business, especially in advance of a potential economic downturn. “Improving asset management provides essential short-term cash flow benefits, as well as positive longer term advantages with regards to workflow processes, security and disaster management preparation,” he said.

“From a purely operational standpoint, having an accurate asset register that shows location, condition and the person responsible can help ensure that assets are available and usable when needed.” But how a business manages its assets also has multiple effects on the entity’s finances, through the very tangible costs of heightened insurance premiums, property taxes and neglected depreciation. Here are several ways that implementing an automated asset management system can help a business be more fiscally responsible and better able to withstand economic turns.

Has your organization taken action, in regards to improving fixed asset management procedures, during today’s economic downturn?

Canadian Sarbanes-Oxley (CSOX)

In light of several, recent corporate accounting scandals, the United States enacted a federal law know as the Sarbanes-Oxley Act of 2002 (SOX). SOX enforces corporate governance and disclosure obligations for publicly traded companies in the U.S. This legislation sparked worldwide attention, especially from Canadian corporations with significant access to U.S. markets. Corporate governance regulators were soon under pressure to implement similar rules in Canada.

In order to develop effective regulations, Canadian officials conducted an analysis of the differences between financial markets in the U.S. and Canada.

Three major differences were identified:

1) Unlike the U.S., Canada did not have a national securities commission.

2) Contrary to the U.S., a significant percentage of publicly traded Canadian companies maintains a controlling shareholder.

3) Many publicly traded Canadian companies are significantly smaller than those in the states; therefore, U.S. SOX requirements would impose a considerable financial burden.

Outcome:

The Canadian Securities Administrators (CSA) created multilateral requirements, very similar to Sarbanes-Oxley guidelines, which adhere to Canada’s unique financial market. CSOX rules are as follows:

MI 52-109
Requires company executives, specifically CEOs and CFOs, to approve quarterly and annual financial reports to ensure accuracy and accountability.

MI 52-110
Expands on standards and rules for audit committees.

MI 52-111
Calls for companies to perform detailed internal testing of accounting processes in accordance with external auditor examinations. This particular rule will be phased in over a time period of four years, starting with financial years ending on or after June 30, 2007.

 What does this mean to your company?

RFID vs. Barcode Scanning

RFID (radio-frequency identification) is the future and traditional barcoding will soon become obsolete. That’s the opinion of many these days…but is it a true statement? While RFID technology has been around for more than half a century, it’s only recently come to the forefront since the cost of scanning devices and tags have dropped significantly.

RFID technology theoretically allows you to walk into a room with tagged assets and inventory items and perform a complete physical audit in a matter of seconds. Travelling quickly from one location to the next, an audit of all fixed assets and inventory items - spread across numerous buildings, floors and rooms, is attainable within a very short time period. Yes, the technology used in RFID is certainly more expensive than conventional fixed asset tracking; however, many will argue that with the timesavings involved, ROI analyses favor RFID.

Q: So which is the better option: RFID or barcode scanning?

A: It all depends.

Your industry, company requirements and finances are just a few deciding factors to be considered in the decision making process.

If you have questions or comments on this topic or are simply interested in learning more about RFID vs. traditional barcode scanning, please post a reply.

The trouble with asset inaccuracy during disaster recovery.

Growing risk awareness and recent natural disasters, such as Hurricane Katrina, have prompted an increasing number of companies to invest in disaster recovery (DR) as part of a business continuity program - but not all have followed suit. Given the growing acceptance that business continuity is an essential component of 21st century business, why are so many companies willing to compromise that investment from day one by failing to retain control over essential asset information?

 Disturbingly, the majority of companies believe the asset register is, at worst, 5% inaccurate - and are therefore shocked when the results of a complete physical audit show it’s actually much worse. Discovering the true level of asset inaccuracy during a disaster recovery situation can create significant business problems. Any inconsistency in the asset register or inability to reconcile the asset value in finance with multiple inventory records will raise significant doubt for insurance companies, delaying payment at best. At worst, an organization could lose any chance of insurance payment and even face charges of claiming for items that do not exist.

 Fixed asset management is a fundamental business process. It determines corporate value and has a direct impact on profitability. Yet, if forced to provide proof tomorrow, how many multi-national organizations could be confident in the value of their corporate assets?

The link between fixed asset management and insurance premiums

An organization’s insurance policy is derived from the value of its asset base. For example, manufacturing and distribution companies are typically asset-heavy, so insurance is a considerable overhead in that industry. With that in mind, many companies will still admit that their asset registers are not actually up to date. When a new fixed asset is purchased it’s usually recorded into the asset register, but then little effort is made to track the asset as it floats around the office from one department or building to another. Fixed assets are eventually sold or disposed of, even at that point, some companies don’t bother to update the asset register. What’s the end result? Companies end up insuring assets they no longer own.

The issue of poor asset management extends far beyond insurance premiums. What happens when a company has to file an insurance claim? Without an accurate asset register, it’s nearly impossible to estimate the value of what’s been lost in a disaster recovery or theft situation. When the assessor comes across a 20-year-old PC on the fixed asset register, they’ll be quick to scrutinize every other item. What’s the end result? Worst-case scenario, the insurance company will refuse to pay the claim.

The asset register has a tremendous affect on a company’s value. Failure to ensure proper fixed asset management means finance directors and internal auditors are not adhering to corporate due diligence.

For further information surrounding this issue click here.