Episode 193: Lost Assets, Legal Nightmares & Fleet Creep: Why You Need a Physical Vehicle Inventory

This is the Fleet Success Show dedicated to helping you and your fleet succeed using the experience of fleet professionals and Hall of Fame fleet legends. The show that explores how the pillars of stakeholder satisfaction, intentional culture, resource efficiency, and risk management all combine to lead your fleet to success. We're glad you're here. Now let's get into the show. Hey, welcome back for another episode of the Fleet Success Show with your hosts, Josh Turley, Nathan Shafer. Good to see you again, Nathan.

Yeah, it's been so long.

I know, right? I know, just to give everybody a little background about who I am, I'm Josh Turley, CEO over here at RTA Fleet. I've been helping and supporting fleets with their fleet management information systems for about 20 years now. And I am particularly fond of helping fleets become, fleet leaders, fleet managers become better fleet leaders, leading their people and setting up an intentional culture. And Nathan, I know you've got some background in public fleet management. Why don't you tell our listeners a little about yourself?

Yeah, you know, I've been doing fleet management for about 25 years and, you know, a good portion of that is in government. You know, I do have some private construction industry and that will come into play a little bit, you know, with some stories later. But yeah, just a good 25 years in the industry, last 3 at RTA, you know, helping fleets use software and do things a little better.

And you're kind of a jack of all trades here at RTA. We tap you for a lot of things, everything from implementation to training to customer success. To sales engineer to whatever.

I have my hands in a few things.

You do. Product design. I think we pulled you in for product design at some point as well, because we definitely love hearing from fleet managers on designing the product. So today we wanted to talk about vehicle inventory. You know, it's something that we do and we offer as part of our consulting projects. You know, we'll go out and help you do vehicle inventory and things like that. So Nathan and I wanted to talk through some of that process, what it looks like, why you should do a vehicle inventory, what happens if you don't. So Nathan, for our listeners who have never heard of this concept before, or maybe they just, you know, don't understand it, what is a vehicle inventory?

I mean, in its very basic sense, it's literally having eyes on every asset you say you own, right? So all your vehicles, all your equipment, all your trailers. If it's, if it's in the software as an active asset, you should put hands on it or eyes on it, you know, make sure you still own it.

And I would even go beyond if it's even in the software. Okay, so this is a story. I was at a NAF event here locally and this poor gal, I think she had just got thrown into her role, and she literally had a stack of papers of like titles that the fleet had purchased at some point. There was no digital records, there was no telematics, and she's like, we don't have a yard, I don't know where these are. In a city like Phoenix, good luck. You know, so yeah, it's, you know, sometimes those assets don't make it into the fleet management system. I mean, we're going to talk about that too. All right. So getting eyes on everything that the city, county, corporation, whatever, everything that fleet should own or that the company organization owns, getting eyes on that asset. And obviously in the world of fleet, we're definitely talking about things with wheels. But it could include other assets too, right? Like generators, HVAC equipment, I'm sure.

Yeah. Construction equipment.

Yeah. So there's a lot that can go into that that you might be responsible for as a fleet manager. But definitely if it's got a motor and wheels, you should be counting that. All right. So now the question is, well, why? Why do I need to worry about doing a vehicle inventory?

You know, obviously we're reporting things that we own. You know, we talked about tax implications a little bit ago, but, you know, if it's an asset on a balance sheet, especially in private, you know, corporations, you know, there's some accounting principles that say we need to go out and count assets for those tax implications and liabilities. So, you know, we definitely want to make sure that what we say we own, we do own, because if we're, you know, getting tax write-offs, we want to make sure we still have it. But also to make sure that, you know, it hasn't been stolen or it's missing. When I worked for a construction fleet, we were moving equipment all over the Salt Lake County weekly. I mean, stuff was moving all over the place. And so it was kind of before GPS was affordable to everybody. This was probably 15 years ago, maybe a little longer. And all of a sudden, we tracked with a magnet board, equipment numbers and descriptions on magnets and move things around on boards. It's archaic, but it worked for us. You know, and this piece of equipment was still sitting out at one of these jobs that was supposed to be done. And so one day I drive out there and I just start talking to the people at the company. I'm like, hey, I just want to— have you seen this, you know, piece of equipment? And, you know, I walked the entire shop, I walked their yard, not there. I have no idea where that piece of equipment went to this day. But literally, that's exactly why we want to make sure, you know, we're keeping track of stuff because it will walk away.

Or literally roll away, right? In this case, you know, depends on the type of equipment. I know, you know, one of our consultants right now is actually in a city doing a full-on inventory. And it's amazing. I'm guessing there's times where, you know, you know that there should be an asset here and it's just not there. Or sometimes you find an asset that you had no record of. Have you ever had that happen?

Yeah, and I will say, you know, working in city government, the biggest issue we get is, you know, I won't say rogue departments, but you get these departments that, you know, have this handshake deal with the city manager and finance and they get money. To go buy stuff on their own and they don't include fleet. And then they're buying assets and you don't know about it until it shows up at the shop to get an oil change or it has a flat tire and you're like, "Well, where did this come from?" And they're like, "Oh, well, we bought it." Well, thanks for letting us know so we could keep track of it for you. So that goes on, I would say, way more than anybody probably knows.

[Speaker:TREY_LOCKERBIE] Well, and the danger there is obviously just the amount of liability, especially if you're in public fleet. But no, this is actually true for corporate too. The amount of liability if your fleet manager is not managing that asset and, you know, it's not getting PM'd on time or properly, the amount of, you know, it's almost— I don't know that it would be criminal. It could be. You'd probably have to talk to a lawyer about that, but definitely civilly liable for negligence, for failure to, you know, follow commercially reasonable standards with the maintenance of that asset, keeping good records of the maintenance of that asset. I mean, that's the fleet manager's number one job, and, you know, is making sure that everything's accounted for. And so, you know, let's say that that rogue asset gets into an accident. Now who's on the hook for that? You know, it's gonna be the organization, whether that's a city or, you know, a private company. So, you know, you let that happen, this is another reason why you should be doing an active inventory. You know, you're just walking around looking.

Yeah, and I would say it's good practice, you know, if you're on a standard replacement cycle, whether if you're in a city and you're doing those yearly, or, you know, if you're a corporation, you do it once you're at budget time, you know, you want to make sure that the things that you're replacing are coming in so that they can be disposed of and you're issuing out the new assets. You know, that's always a good time, you know, we're replacing this stuff, but once we're done with that replacement cycle, it's always a good time to just say, well, let's walk the different parking lots. Let's, you know, go to the different departments. Let's put hands on things. Maybe we're going to update photos. You know, you could even coordinate a roll-by with your departments and just say, hey, everybody that has a city vehicle or a vehicle that belongs to this department, "From this time to this time, just drive through the yard. We just want to take a picture of it so we can, you know, account for it. And it's not going to take you any time out of your day." And let them get back to work. And, you know, it's amazing the things that you find when you do that stuff. It's unbelievable.

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One of the other reasons to do this as well is proof of ownership. You know, proving that you actually had this vehicle at this time, what the condition of that vehicle was, because you never know what might happen, right? Maybe one of your electric vehicles gets in an accident and it catches all the others on fire. You have had personal experience with, you know, shop fires, and all of a sudden, like, you lose a whole bunch of assets that go in there. You got to be able to prove that you had it, and having photographic evidence like, "Nope, it was in the yard on this date and this is what it looked like with the number on the side. We can prove we had this asset." Yeah.

Well, let's talk about the fire. The fire happens and they determined it was one of the vehicles, one of the plow trucks started the fire. It burned down half the public works building and 12 trucks and a loader and all kinds of stuff. If you don't think the insurance investigators came in and started being very stringent about records, you're wrong, right? Because it was— I mean, they wanted to know when the last time it was in the shop, when the last time was that we touched it, what were we working on, you know. And so they were very stringent about records. So if, if you got rogue departments buying stuff and they're not reporting it to you, you know, that's just one small piece that, you know, that liability could come back.

So I mean, other, other, you know, I guess mechanical pieces of this, you know, we talked about maybe doing a roll-by. Like, are you just printing off a sheet of paper and you're basically just checking them off a list? You know, how would you go about doing that knowing some of the tools and technology we have available today? How would you go out doing a vehicle inventory?

Well, you know, I think telematics helps, you know, find locations. So it's kind of nice to be able to use telematics to assist with where things are if we can't find it or if we're trying to just drive around, you know, and do that. You know, using technology, obviously we've got a list electronically. If you've got a mobile app with your FMIS, you know, that you can take photos with, you know, you can walk out, take a photo of it. Attach that photo to the record. Also update odometers, do things like that so that you, you know, we touched it, we updated the hour meter, the odometer, whatever it might be, you know, get a good current photo of it and attach that to the record. And so I think that's a good way to do it, you know, maybe make some notes or, you know, something like that in the record just to update and say we touched it on this date and things like that. So definitely beneficial. I would definitely get photos if you can and attach all that stuff to the records so that you can prove that you were there.

Maybe another tip would be if you've recently seen a vehicle, right? 'Cause every year you should be doing some type of annual inspection. That's a great time just to do like an inventory spread out throughout the year. But even like with your parts, we recommend doing a quarterly parts inventory. Your vehicle should be in a similar thing, maybe not quarterly, but annually where, nope, like it's just to count it. We're just counting it, we're just getting a picture of it. We're not doing anything else, you know, it might be more efficient that way, but it at least makes sure that you've seen it on this date. And you're not trying to go run reports like, well, did we actually see it that day? Or did we just have a work order without picture evidence? So doing an actual dedicated inventory session, you know, just makes that really clean. And then all the records are together as well.

Yeah, I will say some of the tough stuff too is, you know, attachments. You know, that was one thing that we had a hard time trying to inventory because, you know, typically they get bought with a serialized machine. And attachments are typically serialized, but they don't necessarily get recorded with that machine. You know, so you're walking, you know, walking a lot, and it could be like at the parks department or something like that. That's, you know, got mowers and backhoes and all kinds of stuff, and there's buckets and snow blowers and all kinds of attachments, right? And that was, you know, for us, I don't know that a physical inventory had ever been done before we did one. And it was, man, it was a mess, you know, walking through trying to figure out where all that stuff came from and where it goes and what it attaches to. It was an exhausting experience.

Well, and if it hasn't ever been moved, what's the life of that? You know, like, when did we even buy this? We don't know. You know, it might have been 20 years ago. We don't know. And then you're trying to go figure out, like, data manufacturer and all that and just kind of run off, you know, the date and the tags that are on that asset itself. Hopefully there's still some on it, right? As you go through, you know, so we talk about like how to do it. We've talked about some of the things like what happens if you don't do it. What are some other things that pop up? You know, if you decide not to do inventory, or it's been, like you said, this is the first time this has ever happened, what are some of the other things that pop up?

You know, I had a couple interesting things. You know, I talked about replacement and kind of making sure that the replacement stuff's going smoothly, right? You know, one of the things that I always used to get was, hey, that thing's for replacement, the new one's here, I need you to bring it in. You know, and they'd be like, oh, we're just gonna use it for another week, we're almost done doing whatever it is we're doing. And you're like, okay. Well, then everybody forgets, right? You get busy and you forget, and replacement cycle's done. And then the next year you go to replace things, and then all of a sudden you put your replacement list together, and that asset that got replaced last year all of a sudden pops up again. But you don't realize it, you know, initially until you go to replace it again. You're like, wait a second, that's not right. So, you know, especially in organizations that are dealing with thousands of assets, you know, you've got to have a good process for that replacement. Because if you don't, then all of a sudden assets that you thought were gone are now still here. So you get the fleet creep and some of those things that, you know, unintentionally you don't mean to do. And so that's why, you know, counting stuff is great. Hopefully you don't take it off of your list or out of your system until you actually get a bill of sale that you sold it, you know, or an invoice. But, you know, it could get you in trouble. And, you know, we had a department that was pretty notorious for trying to— oh, we're going to keep it for another week because they'd forget about it, we'd forget about it, you know, and then they try to replace it again the next year. And You know, if you're in government, that kind of funding stuff, you know, funding a replacement for something twice can get you in trouble. So you got to pay attention to that stuff. You know, they got it over on me once, but once I saw what they were doing, I kind of got a good process in place. But, you know, little things like that you don't think are happening, you know, that will add to your fleet real quick.

Well, and especially if you're doing any kind of like chargeback system where you're charging a replacement fee, which is something we recommend always doing, right, as part of your vehicle chargeback. That you include charging for the replacement of that vehicle so that when it's time to replace a vehicle, you actually have money in CapEx set aside for it so you don't have to go fight for budget. It's already, it's like it's been saved up over time. But yeah, you do that and then it's up for replacement next year. Well, it's only had a year under the old, new replacement cycle. It's the rogue fleet, but you at least knew about it at one point. But it's rogue fleet by any other name. You know, it's the same as if they got that sweetheart deal from the city manager to go buy their own thing. 'Cause otherwise it'd be coming in, you know, and I guess maybe if you didn't flag it that it'd been replaced, you know, you wouldn't have known that you replaced it with another asset, you know, unless you moved it to a different facility, a different location, or tagged it somehow in the system. But yeah, it definitely will get you into trouble, right? If you start hoarding assets or you're trying to double dip on the replacement budget, accounting doesn't like that. They're not fans of that. They will absolutely come down on you.

[Speaker:JARED_SORENSEN] Yeah. One of the other great benefits of doing that physical inventory too, like you said, is we have the list of things that we say are active. Well, what about the things that we don't find? Do we go find a sale record? Hopefully you find a sale record. So hopefully you sold it, right? And just didn't take it out of the system. You know, I, first couple of years doing some of this stuff, I found a lot of stuff that was sold that just never got marked as sold or moved out of the active vehicle list in the software. You know, it's tough if you're doing those yearly inventory or not inventories, but the yearly PMs, you know, once a year, that's a good way to catch some of that stuff too. But yeah, initially when I first took over the city, it was finding all kinds of stuff that had been sold and just not taken out of the system. There just wasn't a good process in place. So, you know, this stuff will help you catch those things too.

Yeah. And there's definitely different consequences, right? So like for a city that overstates its assets and things like that, you know, you just, you have issues with fraud and abuse. But on the corporate side, on the private side, if you're not keeping up with your assets, well, you're actually materially affecting the balance sheet. You know, especially with some of these assets. If you're a garbage company, that's a $400,000 truck. So what ends up happening is like you can actually get yourself into tax liability issues. Like forget the, you know, the corporate liability or the professional liability of not maintaining a vehicle. Now you actually may trigger some tax issues because you're not properly handling the disposition of those assets. They've been on your records and been on your books for years, but you got rid of them, should have written them off, probably sold it, and then you didn't recognize the gain from the sale. Otherwise, that— because that's got to hit somewhere. There are all kinds of tax implications if you're not properly managing your inventory, and you'll find yourself under all kinds of penalties from the IRS.

They love that. So they do.

Anything else, Nathan, I'm not thinking about when it comes to, you know, vehicle inventory, some of the challenges of doing vehicle inventory? I know one of our fun friends is having some challenges just politically. You know, there's sometimes people can get a little bit persnipity when all of a sudden you're looking into their stuff. I'm sure that, you know, this department never did anything wrong in your case where they were having their rogue fleet. But, you know, it definitely can feel like that. Somebody is looking at your thing and auditing you. You know, you're dealing with people and people have emotions and sometimes you have to deal with the fear and psychology that comes along with that.

Yeah, there's definitely some, you know, ego that comes into play, unfortunately, you know, with different personality types and stuff. And, you know, especially if you, you know, they think you're trying to take things away from them or something like that. And it's like, you know, we're just here to make sure you have what we think you have, you know. You know, especially if they're making those handshake deals and have things that you don't know about, right? That's especially when they get a little—

Very defensive.

Yeah.

Because they have something to defend. Because they did something wrong and they know it, right? They got caught with their hand in the cookie jar.

Yeah, and I, you know, I always, I worked pretty well with our department heads and just said, you know, I just, I wanna make sure that we're taking care of the assets however you get it, right? Let me take on the liability and the responsibility for maintaining it and make sure it's safe for you guys and, you know, keeping the records and stuff like that. And that's ultimately what it came down to for us. You know, I think, you know, some fleet managers unfortunately don't have it that easy. You know, I think they have a lot more of a battle and it can get political and, You know, you just got to do what you can.

And that we're going to add part-time psychologist to the list of fleet manager duties.

There you go.

I don't know if you've ever seen that slide. Mark's got a slide where he talks about all the different things that fleet managers are responsible for. Yeah. And it's like a very, very condensed— and he has, you know, slide 1 and it's probably got 50 bullets on it. And he says, oh, but wait, there's more. And he goes to slide 2, it's got another 50 bullets. Slide 3, we're still filling out, but we're going to go ahead and put part-time psychologist on the list.

Definitely need to, for sure.

All right. Well, if you haven't done a vehicle inventory, it's obviously something we'd love to help you with. You know, we can guide you through it, walk you through it. We can step onto the political landmines for you and be the bad guy. I mean, Lord knows we're doing that right now in a couple of cases. Yeah, just email us podcast@rtfleet.com. Go check out fleetconsulting.com, you know, and we are absolutely happy to help you with those types of projects. You know, if you're— if you don't have an FMIS to help you with that as well, Well, we're really good at that piece, and so happy to help you there. But otherwise, until next time, we'll see you guys on the show. We hope you enjoyed the show. If you'd like to help support the podcast, please share it with others, post about it on LinkedIn, or leave a review. Want to learn more about our fleet management software Fleet 360? Check us out at rtafleet.com. If you want to learn more about having your fleet evaluated by our consulting team, go to fleetconsulting.com.