Asset Management Policies
This page provides detailed guidance to help local governments in Washington State develop and adopt asset management policies, including key questions to consider and sample policies.
Note: The following guidance is primarily directed toward “cash basis” accounting and reporting local government entities, which are the majority of local governments in Washington State. For those jurisdictions that account and report on a GAAP basis, there are GASB statement requirements that define values differently. If you report using GAAP, be sure to check with the State Auditor's Office GAAP BARS manual for further guidance.
Local governments have a wide variety of assets, ranging from capital or fixed assets such as major government facilities, infrastructure, and equipment to non-capital items such as computers and tools that are considered small and attractive assets. Each of these assets is essential to the delivery of services, quality of life, health, and safety of the citizens within your jurisdiction.
Local government has an inherent responsibility to safeguard its assets and to develop a system of asset management that considers oversight and control in addition to the short-term and long-term maintenance, repair, and replacement of these assets for continued performance and reduced life cycle costs.
The Washington State Auditor’s Office requires some form of asset management for all local governments, regardless of size. Without an asset management policy, the public’s money (assets both large and small) can be lost or wasted.
An effective asset management policy should, at a minimum, address the following areas:
- Scope and purpose
- Capitalization threshold
- Additions, transfers, disposals, and losses
- Inventory and periodic assessment of condition
- Maintenance and repair
The scope and purpose statement is the opening statement of your policy. It should set a clear and concise picture of your jurisdiction's objectives. For example, something like:
This policy is established to provide guidelines that will ensure good stewardship over City resources through a uniform method of accountability and inventory of the assets of the city.
An asset management policy is dependent on a clear understanding of what the term “assets” means in your jurisdiction, and what types of assets your jurisdiction has. Defining the terms used throughout the policy will ensure that those responsible for implementing the policy have a clear understanding of the requirements.
For “cash basis” accounting and reporting entities in particular, it is important to clarify within the scope and purpose statement the objectives of the asset management system. While GAAP entities are required to account for and report capital assets in their financial statements, cash basis entities do not record assets within their financials except to expense them when purchased. As a result, the focus for cash basis entities is on management of the public asset to ensure its safekeeping at the lowest life cycle cost.
Key definitions to consider:
- Capital Assets are those assets that are intended to be held or used for the long-term. Examples include land, buildings, artwork, improvements, machinery, and equipment. Your policy should designate a capitalization threshold (see below) and consider the asset’s life expectancy.
- Infrastructure refers to the local government's public works system. The definition is similar to capital assets and may or may not have the same capitalization threshold. Examples include streets, roads, bridges, curbs, sidewalks, water lines, sewer lines, etc.
- Small and Attractive Assets typically means those items that fall below the capitalization threshold (see below, frequently $5,000 or less) but often have a heightened risk of theft. Your definition should include thresholds and types of assets that would be considered attractive, such as (but not limited to) laptop or tablet computers, video and sound equipment, police weapons, public works tools and equipment, and cell phones/smartphones.
- Inventory refers to the physical function of verifying the existence and location of assets. The definition should include both small and attractive assets in addition to capital assets. Taking inventory of your jurisdiction’s assets is vital, and clearly defining what an inventory includes will help you establish your procedures.
Your policy should establish a capitalization threshold, or dollar limit. Purchases above this threshold will be classified as capital assets, while purchases below this threshold are considered operating costs.
Some jurisdictions use a cost method, establishing a flat dollar amount, while others may set different thresholds for different types of assets. Below are examples of each method. The exact thresholds are up to the jurisdiction, but federal guidance is $5,000 so most entities set their capitalization thresholds to meet this standard for grant compliance. Small jurisdictions may have thresholds well below this level.
|Example of Capitalization Threshold: Cost Method
|All non-infrastructure assets with a cost of $5,000 or more, and infrastructure additions where individual items cost $5,000 or more, will be capitalized. Although Small and Attractive Assets (assets costing less than $5,000) do not meet the city’s capitalization threshold, due to ease of conversion to private use, they are considered assets for purposes of marking and identification, records keeping, and tracking.
|Example of Capitalization Threshold: Types of Assets
|Buildings, Building Improvements, and Building Fixtures
|Improvements Other Than Buildings
|Machinery and Equipment
Key questions to consider:
- What accounting method does your jurisdiction use? Asset thresholds for capitalization purposes should take into consideration the method of accounting. GAAP accounting and reporting entities will have to consider reporting requirements, while cash basis entities will need to be sure to use the appropriate BARS expenditure code to identify capital assets (BARS 594 plus object code for all capital expenditures, except for roads/street construction which are assigned to 595 plus object code).
- Does your jurisdiction have or anticipate having assets purchased with grant funds? Grant agreements may contain stricter (lower) capitalization thresholds, so consider this if you are considering a threshold greater than $5,000. For example, you may want to include language stating that the threshold level for assets purchased with grants will be superseded by the requirements of the grant agreement.
- Are your asset thresholds consistent with your jurisdiction’s other policies or plans? The asset threshold defined in the capital facilities plan or capital improvement plan should be the same as the asset management policy.
Over time, a jurisdiction will acquire new assets, transfer certain assets to other departments, dispose of old or unneeded assets, and occasionally lose assets. Your asset management policy should consider how to report all of these changes to your Finance Department.
Key questions to consider:
- How will you report any additions (new assets)? Judicious use of BARS coding will assist with management of capital assets. Consideration should be given to those assets defined as “small and attractive” to ensure that they are recorded into the asset management tracking system. Donated assets should define the value to be used, such as fair market value.
- How will you report transfers between funds within the organization? Cash basis entities should address transfers between governmental funds and proprietary funds within the policy, including a discussion on how to define value of the asset being transferred, such as current market value or fair market value. For cash basis entities there is no consideration for depreciation. However, GAAP reporting entities are required to recognize accumulated depreciation, so GAAP entities should speak to current carrying value or book value (original cost and accumulated depreciation) and refer to GASB Statement 72 for guidance.
- How will you report disposed or sold items? Disposal considerations should include whether the asset was purchased with grant funds and whether there are any special restrictions on the disposal of the assets. For sold or junked assets, you should consider the requirements to surplus. (MRSC has more information on the sale of surplus property for cities, counties, and special purpose districts.)
- How will you report lost, stolen, or destroyed items? Assets that are missing, destroyed, or stolen should be removed from the asset management system and reported. You should establish notification forms and procedures for reporting the items to the department head, finance department, police (if necessary), and SAO under the provisions of RCW 43.09.185.
A periodic inventory of all assets is a key component of the asset management policy. This component should provide written inventory instructions and frequency of inventory.
In addition, a periodic measurement of the physical condition of the asset should be conducted. Physical condition inventories typically occur less frequently than the overall asset inventories.
Key questions to consider:
- For counties: What are your statutory requirements? RCW 36.32.210 requires an annual inventory of all capitalized assets to be filed with the county auditor; however, the more detailed statutory requirements and deadlines were repealed in 2017.
- For all other local governments: How often will you conduct inventories, and what will the deadlines be? Including specific timeframes will help you complete the inventories and reduce the probability of incomplete inventories. (For example: the Finance Department will supply an inventory worksheet to all departments by January 31 of each year and each department will conduct a physical inventory to verify existence and condition and return the completed worksheet to Finance by February 28.)
- How will you document exceptions? For instance, how will you account for missing items, incomplete information, newly located items, and other potential inventory issues? Your policy should address all of these scenarios.
- What internal controls do you need to ensure accountability? Is the individual taking the inventory the same individual who purchased the asset and/or placed it on the asset inventory list? Is there oversight to ensure accuracy and to provide a high degree of accountability?
- If your jurisdiction has not conducted an inventory before, how will you report the status of existing assets? You will need several key pieces of information such as: what do we own, where is it, what is its condition, what is its useful life, and what is its value? Some of this information may be difficult to find, so the use of estimates is appropriate but should be supported with documentation on how the estimate was developed.
- What steps will assist with the creation of an asset inventory? It may be helpful to use checklists to identify the asset and an asset location map to assist with locating it. Useful life and asset values may be determined by consulting useful life tables such as OFM’s State Administration and Accounting Manual (SAAM), American City & County Government Product News, and other similar online tools.
The SAO BARS manual (GAAP) chapter on Capital Asset Management System Requirements states in item 22.214.171.124:
As a steward of public property, officials have the obligation not only to safeguard assets from loss but also to ensure that they are not neglected, wasted, or misused. The local government should not find itself surprised by building or equipment repair or maintenance requirements or by predictable problems with down time and availability of spare parts.
Budgetary pressures often curb the proper investment of time and funds to maintain the assets to a level that will ensure its full life cycle expectancy. A local government's financial plans should address the continuing investment of operating funds to maintain its capital assets.
Key questions to consider:
- Where and why should maintenance be performed? Should maintenance be conducted on a reactive or predictive basis? Systematic scheduling of maintenance, repair, and replacement will ensure continued services and optimize operations and maintenance.
- Do you have enough funding to maintain the assets for the required level of service? Are the rates in the proprietary funds sufficient to meet the maintenance and repair needs? Do you need to consider revising the rate? Do you have reserves set aside for emergency repairs?
- Do you have a long-term strategy for the maintenance and repair of critical assets? Does your schedule differentiate between critical and non-critical assets? Should you consider listing your assets according to how critical they are to operations?
Below are some examples of asset management policies that may be useful, with an emphasis on small and mid-size jurisdictions. Many jurisdictions incorporate small and attractive assets into their general asset management policies, but some have adopted separate policies.
City Asset Management Policies (General)
- Colville Fixed Assets Policy and Procedures (2015)
- Bellingham Capital and Attractive Theft Sensitive Assets Policy (2010)
- Kirkland Asset Policy and Procedure (2006) – Useful policy, although its capitalization threshold of $10,000 is higher than most jurisdictions
- Marysville Fixed Asset Capitalization Procedure (2009)
- Mukilteo Capital Assets Policies and Procedures (2019)
- Tumwater Operating Policies - Assets (2011)
- Woodland Policy and Procedure for Fixed Assets (2014)
City Small and Attractive Asset Policies
- Buckley Small and Attractive Items Policies and Procedures (2017) – Includes adopting resolution
- Colville Small and Attractive Items Policy and Procedures (2015)
- Ephrata Small and Attractive Assets Policy and Procedures (2009)
- Leavenworth Small and Attractive Assets Policy and Procedures (2010)
County Asset Management Policies
- Benton County Capital Policies and Procedures (2011)
- Chelan County Code Sec. 1.70.520 - .560 – Codified
Special Purpose District Asset Management Policies
- Mukilteo Water and Wastewater District Capital Assets Policy (2009)
- Sno-Isle Library District Capitalized Asset/Small and Attractive Asset Policy
Inventory and Disposition Forms and Checklists
- Asset Control Form – Includes asset identification information, purchase details, department/location, and estimated life
- Fixed Asset Disposal/Transfer Form – Used to record the sale, auction, donation, scrapping, or theft of items over $5,000
- Small and Attractive Assets Disposal/Transfer Form – Used to record the sale, auction, donation, scrapping, or theft of items of $5,000 or less
- Kirkland Asset Disposition Form – Used to record the surplusing, trade-in, transfer, damage, loss, or theft of any asset, including small and attractive assets as well as larger items and vehicles over the capitalization threshold
- MRSC Sample Inventory Forms (2017) – Sample inventory control worksheets for capital/fixed assets, small and attractive assets, and public works shop
Asset Management RFPs
- Bothell Enterprise Asset Management Software RFP (2015) – RFP for off-the-shelf enterprise asset management software with GIS integration and minimal modifications, plus related training and support services.
Below are some useful resources from the State Auditor's Office (SAO) and Government Finance Officers Association (GFOA) to help you develop asset management policies.
- SAO Performance Center: Best Practices for Internal Controls over Small and Attractive Assets (2018) – Includes information on conducting a risk assessment, as well as best practices for tracking assets, maintaining inventory lists, and conducting inventories
- GFOA Best Practice: Capital Asset Management – Recommends a system for assessing assets and then to plan and budget for capital maintenance and replacement.
- GFOA Best Practice: Role of the Finance Director in Capital Asset Management – Helpful tool for finance directors, clerk/treasurers and finance staff. Provides a list of areas to consider when developing asset management plans.
- GFOA Best Practice: Control Over Items That Are Not Capitalized – Discusses controls over small and attractive assets.
- GFOA Primer: Estimated Useful Lives of Capital Assets – Discusses the importance of determining useful life for capital assets and its relationship to the quality of financial reporting.
- GFOA Publication: Accounting for Capital Assets: A Guide for Local Governments (2008) – For-purchase publication covers a wide variety of topics related to capital asset management
- SAO BARS Manual (Cash Basis)
- <Capital Assets Management (Section 3.3.8.) – Provides minimum requirements for asset management. For additional guidance refer to the GAAP BARS manual below.
- SAO BARS Manual (GAAP):