20% Book to Floor Inventory Discrepancy Ratio – Should We Accept That in Our County School Systems?

Earlier this year, an embarrassing story about a county school system missing  close to $50 Million in property caused many county school systems to examine their own asset management policies and procedures. It’s definitely a loud wake up call, providing a much needed push for urgency in improving the asset management practices in our county school systems.

In a 2013 inventory audit report conducted by a third party inventory service provider, Shelby County School in Tennessee was found missing nearly $50 Million in property. About 20% of asset items that were recorded in the books were not found during that Wall to Wall inventory audit. Just to provide some perspective on the relative magnitude of that loss: the same school said its 2014-2015 budget shortfall is $103 Million.  So the missing property is equivalent to 50% of the budget shortfall.

About 20% of the assets that had previously been recorded on the book were missing in the inventory audit. In other words, the Book to Floor Inventory Discrepancy Ratio was about 20%. Some details on the missing property count:

  • 23.3% of all assets missing from legacy MCS (Memphis City Schools) schools.
  • 18.6% of all assets missing from legacy SCS (Shelby County Schools) schools.
  • Nearly 55,000 total assets not accounted for.

Best practices in asset management would suggest that anything greater than 3% in Book to Floor or Floor to Book Inventory Discrepancy Ratio is problematic. 20% in Book to Floor Inventory Discrepancy Ratio was a disastrous number.

After the inventory audit report was made public, the embarrassed Shelby County School immediately went to look for the missing assets. They cited the merger of two school systems as the cause for the missing assets. They later said that they found 70% of the missing assets. With that recovery, the reconciled Book to Floor Inventory Discrepancy Ratio would be around 6%, still much higher than the range recommended by best practices.

The missing $50 Million in property had caused a public relations disaster for Shelby County School. However, another piece of information, equally disastrous, was perhaps somewhat ignored. The lead auditor felt those numbers were in line with comparable size school systems.  This means that 20% Book to Floor Inventory Discrepancy Ratio is the state of the asset management practices in most county school systems.

Here is how the Shelby County School Chairman Kevin Woods reacted to auditor’s comment about the 20% norm.

“We’re glad you’re happy with 20%,” said SCS Chairman Kevin Woods, “but when this plays out in the media, the taxpayers won’t be happy with about 20% of our assets missing.”

He is right, taxpayers shouldn’t accept the 20% number. 20% Book to Floor Inventory Discrepancy Ratio indicates the disastrous state of asset management in our county school systems. It is time for our county school systems to make it a priority to improve their asset management practices.

 

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