Michael Staunton and Adam Lynch of Principle Valuation discuss three best practices for successful recordkeeping of hospital assets.
1. Identify and remove disposed assets from the books. Hospital staff are very good at recording the purchase of new equipment or devices, but they often forget to remove these items from the record when they depart. This practice can leave several years' worth of old assets on the books. "There is some benefit to cleaning that," says Mr. Staunton. "It becomes easier to read the record when it's cleaned up, and disposing of old assets from the books can also impact the hospital's bottom line."
An average-sized hospital could potentially record 500 new assets per month, and if there isn't an organized system for tracking what comes in and goes out, it's easy to make mistakes. "As the record grows, people don't think about the disposals," he says. For example, if computers in the hospital are updated, the old computers should be removed from the system so the books only reflect the actual assets currently in use rather than showing the inflated number of collected assets over time.
2. Make sure your records don't accumulate unwanted depreciation. If a piece of equipment or other asset is no longer in use, or in existence, it should be physically disposed of and removed from the books. For instance, if the hospital once owned a building and it wasn't remove from the records when it was replaced or sold, the hospital may have paid several years worth of insurance on the old building. In addition to placing a strain on the hospital's finances, this carries accumulated depreciation on the hospital balance sheet making it appear older than it really is. "Having fully depreciated assets, such as old MRIs, on the books make hospitals seem like they are dated and worn," says Mr. Lynch. "You have to clean them out."
For one client, Principle Valuation identified $31 million in disposals to remove from the books, and almost all of it was fully depreciated. When the disposals are removed, the hospital's books more accurately reflected their real situation. "Taking care of the books puts you in the best light," says Mr. Lynch.
The amount of expensed and accumulated depreciation effects a hospital’s financial statements. For audit purposes it is important that processes and procedures are in place to maintain an accurate asset record. In addition, when hospital or health system executives are seeking debt financing, financial intermediaries, capital sources and rating agencies scrutinize the financial statements impacting the cost of capital and possibly access to capital.
3. Implement bar code tag system. Tagging equipment with bar codes as they arrive at the hospital will help organize the process. The bar code tag should be recorded with an asset's place on the fixed asset ledger. You can use bar code systems to ensure equipment is maintained to a standard code. When equipment is disposed of, it can be easily identified and removed from the records. The bar code tag system also helps you keep track of the equipment as it moves between departments in a hospital or between hospitals within a health system.
Learn more about Principle Valuation.
More Expertise From Principle Valuation:
5 Ways Hospitals Suffer From Inaccurate Asset Records
Hospital Inventory Tip: Keep Track of Movable Asset Inventory
Non-Profit Hospital Tip: Create a Building Life Strategy
1. Identify and remove disposed assets from the books. Hospital staff are very good at recording the purchase of new equipment or devices, but they often forget to remove these items from the record when they depart. This practice can leave several years' worth of old assets on the books. "There is some benefit to cleaning that," says Mr. Staunton. "It becomes easier to read the record when it's cleaned up, and disposing of old assets from the books can also impact the hospital's bottom line."
An average-sized hospital could potentially record 500 new assets per month, and if there isn't an organized system for tracking what comes in and goes out, it's easy to make mistakes. "As the record grows, people don't think about the disposals," he says. For example, if computers in the hospital are updated, the old computers should be removed from the system so the books only reflect the actual assets currently in use rather than showing the inflated number of collected assets over time.
2. Make sure your records don't accumulate unwanted depreciation. If a piece of equipment or other asset is no longer in use, or in existence, it should be physically disposed of and removed from the books. For instance, if the hospital once owned a building and it wasn't remove from the records when it was replaced or sold, the hospital may have paid several years worth of insurance on the old building. In addition to placing a strain on the hospital's finances, this carries accumulated depreciation on the hospital balance sheet making it appear older than it really is. "Having fully depreciated assets, such as old MRIs, on the books make hospitals seem like they are dated and worn," says Mr. Lynch. "You have to clean them out."
For one client, Principle Valuation identified $31 million in disposals to remove from the books, and almost all of it was fully depreciated. When the disposals are removed, the hospital's books more accurately reflected their real situation. "Taking care of the books puts you in the best light," says Mr. Lynch.
The amount of expensed and accumulated depreciation effects a hospital’s financial statements. For audit purposes it is important that processes and procedures are in place to maintain an accurate asset record. In addition, when hospital or health system executives are seeking debt financing, financial intermediaries, capital sources and rating agencies scrutinize the financial statements impacting the cost of capital and possibly access to capital.
3. Implement bar code tag system. Tagging equipment with bar codes as they arrive at the hospital will help organize the process. The bar code tag should be recorded with an asset's place on the fixed asset ledger. You can use bar code systems to ensure equipment is maintained to a standard code. When equipment is disposed of, it can be easily identified and removed from the records. The bar code tag system also helps you keep track of the equipment as it moves between departments in a hospital or between hospitals within a health system.
Learn more about Principle Valuation.
More Expertise From Principle Valuation:
5 Ways Hospitals Suffer From Inaccurate Asset Records
Hospital Inventory Tip: Keep Track of Movable Asset Inventory
Non-Profit Hospital Tip: Create a Building Life Strategy