Having policies and controls in place to safeguard assets minimizes the risk of loss while maintaining a cost-benefit balance. However, there is not a single catch-all that will protect all forms of assets. So it is important to identify your company’s various asset classes and design controls by asset type.
Here are a few common types of assets that require unique controls and safeguards to minimize the risk of loss.
Physical assets: The primary risks involved with physical assets like equipment and inventory are theft and misappropriation. Reducing the risk of external theft can be achieved fairly directly; it is just a matter of conducting a cost-benefit analysis to determine the level of security you require at your warehouses and corporate offices.
Reducing the risk of employee theft can be trickier. Too-stringent security protocols can lead to employees feeling that the company does not trust them, which can result in lower morale and higher turnover. So you need to find the right balance between minimizing the risk of theft, while keeping the workplace environment positive. This may mean leaving lower value inventory or larger equipment (that would be difficult to walk out the door with) unprotected internally, while concealing high value and smaller assets (that are easy to conceal) in a locked office or safe.
Cash: Since petty cash is kept at low balances in most companies, the greater risks involve improper disbursements and stolen customer payments. The most efficient way to mitigate these risks is through effective preventive controls.
As a general rule, one employee should not have custody, authority, and recording responsibilities over cash. For example, an employee should not have access to blank checks, and also be a check signor. An employee with the authority to approve vendor invoices should not also be able to add vendors to the company's master file. The employee who handles bank deposits should not be posting to the accounts receivable ledger, and specifically should not have the authority to write-off customer balances. Lastly, the employee who performs the monthly bank reconciliations should not be performing any of the aforementioned tasks and responsibilities.
Creating segregation of duties across transaction cycles is the simplest and most effective way to improve a company's controls and reduce the risk of loss.
Intangible assets: This category includes a company's reputation, which in some cases is a company’s most significant asset. Events like a decrease in product quality, bad press, or poor handling of customer relationships can cause consumers and the public to lose trust in the company – and the associated losses are often immeasurable.
Loss can also occur as a result of data breaches, as evidenced by recent incidents involving Target and Home Depot. In a recent study conducted by the Ponemon Institute, 57 percent of respondents stated they lost trust and confidence in an organization that suffered a data breach. While not all companies are at a high risk of data breaches, this statistic can be more generalized to emphasize the drastic effect a loss of consumer trust can have on an organization. Management should ask themselves whether the company would survive if it lost half its customer base.
When assessing your company’s risks related to asset loss, determine which assets are at the greatest risk before implementing proper safeguarding measures. There is not one solution that will protect all of your company's assets. Taking a systematic and comprehensive approach is the most effective path to loss minimization.
Steven P. Feimster can be reached at Email or 215.441.4600.
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