City of Bowling Green Creates Physical Inventory to Safeguard Its Equipment Assets.

Author:Ballou, Erin

The City of Bowling Green, Kentucky, Finance Department conducts an inventory of land, building, and improvement assets approximately every five years and for equipment assets every two years. The program began in fiscal 2008, after a period of eight years with no inventory as a result of turnover in key finance and accounting staff. By fiscal 2008, none of the staff members involved in previous physical inventories were there to help--and a new audit firm was hired in fiscal 2006--so the assistant chief finance officer (ACFO) had to start over from the beginning, by researching best practices and relevant examples from other cities, universities, and attending a GFOA capital assets training session held in December 2006.

Since physical inventories were reestablished, the city has made continuous improvements to the program. In fiscal 2010, the process was embedded in the city's financial software, where minor changes are automatically uploaded from inventory batches directly to the capital asset file. Then, in 2012, random verification audits were introduced, and in 2014, annual asset reviews were added. (See Exhibit 1 for a timeline detailing the evolution of the program.)

The lack of a physical inventory for eight years luckily did not result in any unmanageable issues. The primary concern was inaccurate records such as miscoded asset locations and responsible departments. For example, if the parks department transferred a mower to the public works department and finance staff were not notified, the asset record would be incorrect. Asset records, and the subsequent reporting, are at risk of being unreliable when the volume of inaccuracies grows, and this could be a concern during audits.

Additionally, the lack of staff that had been through an inventory process did not lead to problems. They used notes from the previous process to develop the program's structure, and their fresh perspective was beneficial. For example, the previous staff used the financial software application minimally, while the new program relied heavily on pulling records from the software and eventually updating them as part of the process. Also, the legacy program was centered on hard copy paper lists with hand-written notes, while the new program favored paperless methods.

The new program has led to fewer variances being reported during the inventory, with 12 transfers or disposals reported in fiscal 2018 versus 66 in 2010. This decrease in exceptions has resulted in more accurate, up-to-date asset records, which in turn produces quality financial statements, since capital assets are a large portion of every city's balance sheet. Staff can also rely on the information in the financial software to make operational decisions; for example, an asset report by location may be used to plan for the closing of a facility during the winter by identifying pieces of equipment that can be repurposed in another area until the spring.


In 2008, the city started using the Physical Inventory of Equipment Assets program every other year to locate and identify all capital equipment assets. Since then, improvements have been added continually, such as embedding the process into the city's financial software to automatically upload minor changes directly to the capital asset file.

The physical inventory process is a collaborative effort that relies on engaged stakeholders, including the ACFO, who manages the process; departmental staff, who complete the inventory; senior managers, who review and approve changes; the internal auditor and chief accountant, who perform random verifications; the purchasing manager, who investigates surpluses from the prior year and variances in the current year; and the city manager and CFO, who support the overall program.

The inventory is conducted as follows:

* The ACFO kicks off the biennial program with a refresher training. All documentation of the process is distributed to preselected departmental staff.

* Each departmental point of contact creates and maintains a physical asset inventory batch for their respective department in the city's financial software. (See Exhibit 2.)

* Departmental staff members locate all listed assets in the inventory batch and note any changes to location, responsible...

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