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Documenting Expendable Property for Loss Coverage
State accounting policies provide agencies the option of recording reusable items purchased for under $5,000 (or that have less than two years of useful life) as expendable property. This allows most personal property items to be expendable property rather than inventoried, capital cost items. It lets you choose to not inventory, depreciate, tag, and search for each item’s tag every year.
You need to manage this in a way that meets three needs related to property risk and insurance. They are preventing loss, measuring exposure to loss, and proving a loss.
Prevention, Managing Risks of Theft
Risk Factors: Annual inventory checks do little to reduce risk. In fact, we exclude items from coverage that are found missing in those checks. Items of large bulk and small value like furniture pose small risk of theft. The risk of theft rises with an item’s portability and value. Examples: Science equipment, portable computers, VCR’s, hand tools, firearms, vehicles, historic or art items, software, cameras, office keys, and office supplies. Some items, like desktop computers, are more at risk at some sites than others. Even large, low cost material can be at risk at rural or unoccupied sites with easy access. But lack of an inventory tag is not a risk factor.
Risk Reduction: There are ways to protect high-risk items from theft. These include tie-downs, blatant and unremoveable markings (less useful if you plan on selling as surplus), internal labeling that is out of view, locked storage, keeping them in plain sight of users, and checking them into someone’s personal custody and control. We urge you to use some of the time you save from reduced inventory work to choose and apply these simple measures. They protect your property from theft more than inventories ever could.
Exposure Value of Your Property
You have to report your expendable property values with reasonable accuracy to satisfy insurance needs. You do not have to inventory your expendable property to do this. Instead, you may use any method that reasonably estimates the quantity and replacement cost of your expendables. Your method must be defined in writing. Its use will be subject to audit. Here are brief descriptions of some methods that should work.
Average or Sampling Method:
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Decide what kinds of units you have. They could be any typical units that contain expendables. Units could be position types, work teams, offices, cubicles, repair bays, workstations, or trucks.
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Select sample units of each type. Inspect and itemize the sample units. List each significant item found in each sampled unit and find the item’s replacement cost. Group, rather than itemize, petty items and supplies. This gives you the average kit or typical equipage of each unit by items and values. Multiply the replacement cost of this average kit by the number units you have of that type. You now have the total expendables by unit type. Sum the totals of all your types of units. Add the values of property in central storage or other property outside the units. The result is the grand total of expendables for the institution, division, or agency.
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Update by resampling or revising your unit values periodically. How often you resample units depends on how frequently they change in your section. When you make significant changes in your standard kit or equipage, update your unit’s average samples.
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Photos or videotapes complement dry lists very well. They are useful evidence and memory aids. If you decide to photo typical units, store photos or copies off premises, in two separate locations or in a fireproof vault. This is a brief, low-cost task with large benefits in the event of a loss. We urge you to do it.
Baseline and Index Method:
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Use as a baseline the current replacement cost of your agency’s expendables.
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Each year adjust for items added and disposed of and for increases and decreases in replacement cost indices. Use the appropriate CPI index or similar inflator.
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This approach is likely to become inaccurate with time. So plan to use sampling or other methods to test for and adjust to keep within reasonably accurate levels. You may want to use the baseline now to test your sampling and use regular sampling to keep accurate.
Itemizing: You may always have items that, although now defined as expendable, you choose to inventory or track in an itemized way. This could be an addition to any of the other methods or your only method. Also, if you are a small agency with few similar units, you can itemize your high value items and group your lesser ones just as if you were sampling a single unit.
Inventory: You may, for a variety of reasons, continue to inventory some or all items. You may hold trust property. A grant or contract may require inventory. If you have reason to maintain inventory, do so. But do not confuse inventory with protection.
Electronic Equipment: Computers, phones, portable scales, and cameras are especially vulnerable to theft. They are valued for their portability and quick resale value. Most are valued under $5,000. We recommend:
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Permanently and visibly mark the property as yours to reduce their marketability.
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Maintain a list of serial numbers and descriptions separate from the items to create a clear trail for recovery when a crook’s stash is found.
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Keep track of the property by requiring all valuable portable items to be checked in and out.
Documenting Losses That Occur
If a loss occurs, you will have to prove a theft occurred and its replacement cost.. The state does not cover mysterious disappearance. If your loss is covered by the state, then documentation is needed for us to pursue the wrongdoer. Any wrongdoers the state may need to sue are entitled to proof of your loss.
Reporting a loss: The sooner you report missing property to police, the better your chance of recovering property. Police will enter your serial numbers and other identifiers into a shared database. Many potential buyers of used property check this resource before buying property. In addition to the police, prompt reporting to Risk Management is important. Claims must be filed within 90 days of the incident in order for the loss to be covered.
Major Loss: The more unusual or exceptional a loss, the more you may expect to need evidence.
If we cover the loss, we use any and all evidence of the loss and its cost. We look at your Risk Reports. We look at the site. We may look at your similar, unharmed units. We interview and ask people to list lost items from memory. We place the greatest possible reliance on your official’s signed statements.
If our excess insurers or a liable wrongdoer will pay for your loss, the need for proof rises sharply. If your records are destroyed or are of poor quality the task gets very hard. Adjusters and attorneys will need to see your records of property acquisitions and disposals and any other evidence. Photos, videos, purchase orders, physical evidence of theft, police or fire reports, expert’s analyses, melted remnants from a fire, and any other evidence may help prove your loss. Photos and videos will be especially useful. They are objective. They prompt people’s memories. And they show that the items were where you said they were.
Loss to a Single or Few Items: We use any and all available evidence. We will need to learn what caused the loss. We try to handle small losses with minimal paperwork. We rely on official, signed statements. But, again, if a wrongdoer is liable, the need for evidence will arise.
History: Revised 2/99. New 6/97. Replaces RMD Policy Amendment 4-101 dated 5/18/94.
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