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T h e A u d i t o r - G e n e r a l Audit Report No.37 2005–06 Performance Audit The Management of Infrastructure, Plant and Equipment Assets A u s t r a l i a n N a t i o n a l A u d i t O f f i c e
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 2 © Commonwealth of Australia 2006 ISSN 1036–7632 ISBN 0 642 80898 8 COPYRIGHT INFORMATION This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to the Commonwealth Copyright Administration, Attorney-General’s Department, Robert Garran Offices, National Circuit Canberra ACT 2600 http://www.ag.gov.au/cca
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 3 Canberra ACT 3 May 2006 Dear Mr President Dear Mr Speaker The Australian National Audit Office has undertaken a performance audit across agencies in accordance with the authority contained in the Auditor-General Act 1997. Pursuant to Senate Standing Order 166 relating to the presentation of documents when the Senate is not sitting, I present the report of this audit and the accompanying brochure. The report is titled The Management of Infrastructure, Plant and Equipment Assets. Following its presentation and receipt, the report will be placed on the Australian National Audit Office’s Homepage—http://www.anao.gov.au. Yours sincerely Ian McPhee Auditor-General The Honourable the President of the Senate The Honourable the Speaker of the House of Representatives Parliament House Canberra ACT
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 4 AUDITING FOR AUSTRALIA The Auditor-General is head of the Australian National Audit Office. The ANAO assists the Auditor-General to carry out his duties under the Auditor-General Act 1997 to undertake performance audits and financial statement audits of Commonwealth public sector bodies and to provide independent reports and advice for the Parliament, the Government and the community. The aim is to improve Commonwealth public sector administration and accountability. For further information contact: The Publications Manager Australian National Audit Office GPO Box 707 Canberra ACT 2601 Telephone: (02) 6203 7505 Fax: (02) 6203 7519 Email: webmaster@anao.gov.au ANAO audit reports and information about the ANAO are available at our internet address: http://www.anao.gov.au Audit Team RussellȱColemanȱȱ BillȱBonneyȱȱ HaritȱWadhawanȱȱ DavidȱMurtough
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 5 ȱ ȱ Contents Abbreviations.................................................................................................................. 6 Glossary ......................................................................................................................... 7 Summary and Recommendations .............................................................................. 9 Summary...................................................................................................................... 11 Background............................................................................................................. 11 Audit objective and scope ....................................................................................... 11 Audited entities........................................................................................................ 11 Audit conclusion and key findings........................................................................... 12 Entities’ comments.................................................................................................. 14 Sound and better practices ..................................................................................... 14 Recommendations ....................................................................................................... 15 Audit Findings and Conclusions.............................................................................. 17 1. Introduction ............................................................................................................. 19 Background to business support process audits .................................................... 19 Context of this audit ................................................................................................ 19 Asset management ................................................................................................. 20 Factors influencing asset management in the Australian Government Sector....... 22 Asset management audits by the ANAO ................................................................ 24 Audit objective, criteria and approach..................................................................... 25 Audit coverage ........................................................................................................ 26 2. Audit findings – Management of Infrastructure, Plant and Equipment Assets........ 28 Introduction ............................................................................................................. 28 Control environment................................................................................................ 28 Asset planning......................................................................................................... 32 Acquisitions............................................................................................................. 35 Operations............................................................................................................... 39 Disposals................................................................................................................. 44 Appendices................................................................................................................. 49 Appendix 1: Audit criteria ........................................................................................ 51 Appendix 2: Content of asset policy and procedural documentation...................... 52 Appendix 3: Entities’ comments on the proposed audit report............................... 53 Index............................................................................................................................. 54 Series Titles.................................................................................................................. 55 Better Practice Guides ................................................................................................. 58
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 6 Abbreviations ANAOȱ AustralianȱNationalȱAuditȱOfficeȱ AFTRSȱ AustralianȱFilm,ȱTelevisionȱandȱRadioȱSchoolȱ Austradeȱ AustralianȱTradeȱCommissionȱ CACȱActȱ CommonwealthȱAuthoritiesȱandȱCompaniesȱActȱ1997ȱ CEIsȱ ChiefȱExecutiveȱInstructionsȱ CPGsȱ CommonwealthȱProcurementȱGuidelinesȱ DIMAȱ DepartmentȱofȱImmigrationȱandȱMulticulturalȱAffairsȱ DPSȱ DepartmentȱofȱParliamentaryȱServicesȱ FMISȱ FinancialȱManagementȱInformationȱSystemȱ FMAȱActȱ FinancialȱManagementȱandȱAccountabilityȱActȱ1997ȱ IPEȱ Infrastructure,ȱPlantȱandȱEquipmentȱ PBSȱ PortfolioȱBudgetȱStatementsȱ ȱ ȱ ȱ ȱ ȱ ȱ ȱ ȱ
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 7 Glossary Assetȱ Anȱassetȱprovidesȱanȱorganisationȱwithȱfutureȱserviceȱpotentialȱ orȱ economicȱ benefits.ȱ ȱ Inȱ thisȱ audit,ȱ assetsȱ wereȱ definedȱ asȱ physicalȱitemsȱofȱinfrastructure,ȱplantȱandȱequipmentȱwithȱanȱ estimatedȱlifeȬcycleȱofȱ12ȱmonthsȱorȱmore.ȱ Assetȱ managementȱ Aȱplannedȱandȱstructuredȱapproachȱtoȱcontrollingȱassetsȱoverȱ theirȱ lifeȬcycle.ȱ ȱ Itȱ encompassingȱ dealingȱ withȱ theȱ risksȱ andȱ costsȱ associatedȱ withȱ anȱ asset’sȱ acquisition,ȱ operationȱ orȱ useȱ andȱ disposal.ȱ ȱ Assetȱ managementȱ isȱ oftenȱ underpinnedȱ byȱ aȱ formalȱ strategyȱ orȱ plan,ȱ includingȱ anȱ analysisȱ ofȱ howȱ wellȱ assetsȱ supportȱ businessȱ objectivesȱ andȱ isȱ characterisedȱ byȱ clarityȱofȱassetȬrelatedȱrolesȱandȱresponsibilities.ȱ Assetȱ capitalisationȱ thresholdȱ Theȱ minimumȱ valueȱ forȱ reportingȱ anȱ itemȱ asȱ aȱ nonȬcurrentȱ assetȱinȱtheȱfinancialȱstatements.ȱȱ Depreciationȱ DepreciationȱisȱusedȱtoȱallocateȱtheȱvalueȱofȱnonȬcurrentȱassetsȱ overȱtheirȱlifeȬcycle.ȱItȱisȱanȱindicatorȱofȱtheȱrateȱatȱwhichȱtheȱ ‘serviceȱ potential’ȱ ofȱ assetsȱ diminishes,ȱ orȱ isȱ consumed,ȱ overȱ theirȱlifeȬcycle.ȱ Financeȱleaseȱ Aȱ leaseȱ whereȱ substantiallyȱ allȱ ofȱ theȱ risksȱ andȱ benefitsȱ incidentalȱtoȱownershipȱhaveȱbeenȱpassedȱtoȱtheȱlessee.ȱ Grossȱbookȱ valueȱ Theȱcostȱofȱacquiring,ȱorȱtheȱfairȱvalueȱattributedȱto,ȱeachȱasset.ȱ LifeȬcycleȱ(orȱ Usefulȱlife)ȱ TheȱassetȱlifeȬcycleȱ(usefulȱlife)ȱisȱtheȱestimatedȱperiodȱofȱtimeȱ overȱ whichȱ anȱ assetȱ isȱ expectedȱ toȱ beȱ used,ȱ orȱ theȱ benefitsȱ representedȱ byȱ theȱ assetȱ areȱ expectedȱ toȱ beȱ derived,ȱ byȱ eachȱ entity.ȱ
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 8 LifeȬcycleȱ costsȱ TheȱtotalȱcostsȱincurredȱoverȱtheȱlifeȬcycleȱofȱanȱasset.ȱȱInȱtheȱ caseȱ ofȱ ownedȱ assets,ȱ thisȱ includesȱ costsȱ associatedȱ withȱ acquiringȱ orȱ constructing,ȱ operating,ȱ maintainingȱ andȱ ultimatelyȱdisposingȱofȱtheȱasset.ȱȱ Netȱbookȱ valueȱ Theȱgrossȱbookȱvalueȱlessȱaccumulatedȱdepreciationȱcharges.ȱ NonȬassetȱ solutionsȱ Methodsȱofȱaddressingȱprogramȱdeliveryȱotherȱthanȱbyȱaddingȱ toȱ assetȱ capacity.ȱ Methodsȱ includeȱ reducingȱ demandȱ forȱ theȱ service,ȱ increasingȱ theȱ utilisationȱ ofȱ existingȱ assets,ȱ andȱ contractingȱoutȱfunctions.ȱ Portableȱandȱ attractiveȱ itemsȱ AssetsȱthatȱareȱbelowȱtheȱthresholdȱvalueȱforȱreportingȱasȱnonȬ currentȱassetsȱinȱanȱentity’sȱfinancialȱstatements,ȱbutȱthatȱneedȱ toȱ beȱ controlledȱ becauseȱ ofȱ theirȱ ‘portableȱ andȱ attractive’ȱ nature.ȱ ȱ
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 9 Summary and Recommendations
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 10 ȱ
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 11 Summary Background 1. Infrastructure,ȱPlantȱandȱEquipmentȱ(IPE)ȱassets1ȱareȱaȱkeyȱresourceȱinȱ meetingȱbusinessȱobjectives.ȱTheȱeffectiveȱmanagementȱofȱIPEȱassetsȱinvolvesȱ theȱalignmentȱofȱassetȱplanningȱandȱdecisionȬmakingȱwithȱbusinessȱprioritiesȱ andȱstrategies.ȱSoundȱmanagementȱacrossȱtheȱassetȱlifeȬcycleȱfacilitatesȱbetterȱ decisionȬmakingȱ aboutȱ theȱ acquisition,ȱ ongoingȱ useȱ orȱ operationȱ andȱ ultimatelyȱ theȱ disposalȱ ofȱ assetsȱ atȱ theȱ rightȱ time,ȱ andȱ inȱ aȱ costȱ effectiveȱ manner.ȱ 2. TheȱAustralianȱGovernmentȱhasȱaȱsubstantialȱinvestmentȱinȱIPEȱassets.ȱȱ Asȱatȱ30ȱJuneȱ2005,ȱitȱreportedȱIPEȱassetsȱwithȱaȱgrossȱbookȱvalueȱofȱ$58ȱbillionȱ (netȱbookȱvalueȱ$32ȱbillion).2ȱȱȱȱ Audit objective and scope 3. Theȱ objectiveȱ ofȱ theȱ auditȱ wasȱ toȱ assessȱ whetherȱ selectedȱ Australianȱ Governmentȱ entitiesȱ wereȱ effectivelyȱ supportingȱ theirȱ businessȱ requirementsȱ throughȱplanningȱfor,ȱandȱmanagementȱof,ȱtheȱacquisition,ȱdisposalȱandȱuseȱofȱ theirȱIPEȱassets.ȱTheȱauditȱreviewedȱeachȱentity’sȱpoliciesȱandȱpracticesȱagainstȱ aȱseriesȱofȱauditȱcriteriaȱacrossȱtheȱfollowingȱcomponentsȱofȱassetȱmanagement:ȱ controlȱenvironment;ȱplanning;ȱacquisitions;ȱoperations;ȱandȱdisposals.ȱ Audited entities 4. Theȱauditȱwasȱconductedȱatȱtheȱfollowingȱentities:ȱ x AustralianȱFilm,ȱTelevisionȱandȱRadioȱSchool;ȱ x AustralianȱTradeȱCommission;ȱ x Departmentȱ ofȱ Immigrationȱ andȱ Multiculturalȱ Affairsȱ (formerlyȱ DepartmentȱofȱImmigrationȱandȱMulticulturalȱandȱIndigenousȱAffairs);ȱ andȱ x DepartmentȱofȱParliamentaryȱServices.ȱ 1 As defined in Australian Accounting Standard AAS 36 – Statement of Financial Position. 2 Excluding Specialist military equipment.
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 12 Audit conclusion and key findings 5. TheȱANAOȱfoundȱthatȱIPEȱassetsȱwereȱbeingȱgenerallyȱwellȱmanagedȱ inȱ theȱ auditedȱ entities.ȱ Inȱ particular,ȱ theȱ entities’ȱ practicesȱ reflectedȱ anȱ increasingȱrecognitionȱofȱtheȱroleȱof,ȱandȱcommitmentȱto,ȱtheȱmanagementȱofȱ IPEȱ assets.ȱ ȱ Theȱ ANAOȱ alsoȱ foundȱ thatȱ theȱ auditedȱ entitiesȱ had,ȱ toȱ aȱ largeȱ extentȱ addressed,ȱ orȱ hadȱ actionȱ inȱ trainȱ toȱ address,ȱ theȱ assetȱ managementȱ criteriaȱevaluatedȱduringȱtheȱaudit.ȱȱ 6. EachȱofȱtheȱauditedȱentitiesȱhadȱwellȬdesignedȱandȱinformativeȱpolicyȱ andȱproceduralȱmaterialȱinȱplaceȱcoveringȱtheirȱoperationalȱassetȱrequirements.ȱȱ However,ȱ onlyȱ oneȱ entityȱ hadȱ adequatelyȱ included,ȱ inȱ itsȱ policyȱ andȱ proceduralȱ documentation,ȱ guidanceȱ andȱ instructionsȱ onȱ theȱ moreȱ strategicȱ issuesȱassociatedȱwithȱtheȱmanagementȱofȱassets.ȱȱForȱexample,ȱdetailsȱofȱtheȱ assetȱmanagementȱprinciplesȱrelevantȱtoȱtheȱentity;ȱincludingȱguidanceȱtoȱstaffȱ onȱtheȱinterpretationȱandȱapplicationȱofȱtheseȱprinciples.ȱȱ 7. Theȱauditȱfoundȱthatȱtheȱassetȱregisterȱinȱeachȱofȱtheȱauditedȱentitiesȱ containedȱ informationȱ concerningȱ theȱ identityȱ andȱ ownershipȱ of,ȱ andȱ theȱ accountingȱfor,ȱIPEȱassets.ȱȱEachȱofȱtheȱauditedȱentitiesȱhadȱgenerallyȱsoundȱ processesȱforȱmaintainingȱtheȱaccuracyȱandȱcompletenessȱofȱtheirȱassetȱregister,ȱ includingȱhavingȱclearlyȱestablishedȱrolesȱandȱresponsibilities.ȱȱȱ 8. Atȱtheȱtimeȱofȱtheȱaudit,ȱtheȱdevelopmentȱofȱformalȱassetȱstrategiesȱorȱ plansȱ wasȱ atȱ anȱ advancedȱ stageȱ inȱ threeȱ ofȱ theȱ entities.ȱ ȱ Theȱ extentȱ ofȱ assetȱ managementȱplanningȱwillȱdependȱonȱtheȱsizeȱandȱnatureȱofȱanȱentity’sȱassetȱ holdings,ȱ includingȱ theȱ criticalityȱ ofȱ thoseȱ assetsȱ toȱ theȱ entity’sȱ businessȱ objectives.ȱȱOverall,ȱbasedȱonȱtheȱproposedȱscopeȱofȱtheseȱplans,ȱandȱgivenȱtheȱ workȱalreadyȱcompleted,ȱtheȱauditȱassessedȱthatȱtheseȱplansȱhadȱtheȱpotential,ȱ onceȱfinalised,ȱtoȱbeȱusefulȱtoolsȱinȱtheȱmanagementȱofȱeachȱentity’sȱIPEȱassets.ȱ 9. Theȱ auditȱ alsoȱ foundȱ thatȱ eachȱ ofȱ theȱ auditedȱ entitiesȱ hadȱ soundȱ processesȱinȱplaceȱtoȱidentify,ȱassessȱandȱapproveȱtheirȱassetȱacquisitionȱneeds.ȱȱ Inȱeachȱentityȱtheseȱprocessesȱculminatedȱinȱtheȱdevelopmentȱofȱsoundȱassetȱ acquisitionȱorȱcapitalȱexpenditureȱplans.ȱEachȱofȱtheȱauditedȱentitiesȱalsoȱhadȱ effectiveȱ arrangementsȱ forȱ monitoringȱ andȱ reportingȱ progressȱ againstȱ theȱ approvedȱassetȱacquisitionȱplans.ȱ 10. Forȱ theȱ mostȱ part,ȱ theȱ auditedȱ entitiesȱ hadȱ soundȱ arrangementsȱ forȱ managingȱtheȱoperationȱofȱIPEȱassets,ȱparticularlyȱthoseȱIPEȱassetsȱcriticalȱtoȱ meetingȱtheirȱbusinessȱrequirements.ȱȱȱTheȱauditȱfoundȱthatȱmostȱofȱtheȱentitiesȱ hadȱ formalȱ andȱ wellȬmanagedȱ preventativeȱ maintenanceȱ programsȱ inȱ place.ȱȱ
Summary ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 13 Inȱ addition,ȱ whereȱ applicable,ȱ soundȱ processesȱ wereȱ inȱ placeȱ toȱ manageȱ theȱ deliveryȱofȱassetȱmaintenanceȱandȱrelatedȱservicesȱunderȱcontract.ȱ 11. Inȱeachȱofȱtheȱauditedȱentities,ȱmanagersȱwereȱregularlyȱprovidedȱwithȱ financialȱ reportsȱ toȱ assistȱ theirȱ assetȬrelatedȱ decisionȬmaking.ȱ ȱ Formalȱ managementȱ reportingȱ wasȱ largelyȱ focussedȱ onȱ detailsȱ ofȱ actualȱ capitalȱ expenditure,ȱ togetherȱ withȱ aȱ comparisonȱ againstȱ plannedȱ orȱ budgetedȱ amounts.ȱ 12. Noneȱofȱtheȱauditedȱentitiesȱhadȱstructuredȱandȱcoordinatedȱprocessesȱ forȱmonitoringȱtheȱperformanceȱofȱtheirȱIPEȱassetsȱonȱanȱentityȬwideȱbasis.ȱȱInȱ threeȱofȱtheȱentities,ȱtheȱauditȱfoundȱthatȱindividualȱoperationalȱareasȱregularlyȱ monitoredȱ performanceȬbasedȱ informationȱ toȱ assistȱ inȱ theȱ managementȱ ofȱ selectedȱ IPEȱ assets.ȱ ȱ Thisȱ dataȱ wasȱ maintainedȱ withinȱ theȱ operationalȱ areasȱ responsibleȱforȱtheȱassetsȱinȱquestion.ȱȱTheȱauditȱfoundȱthatȱthisȱperformanceȱ informationȱwasȱfocussedȱonȱnonȬfinancialȱmeasures.ȱȱInȱaddition,ȱatȱtheȱtimeȱ ofȱ theȱaudit,ȱ noneȱ ofȱ theȱ entitiesȱ hadȱ specifiedȱ anyȱ standardsȱ relatingȱtoȱ theȱ financialȱperformanceȱofȱassets.ȱȱTheȱANAOȱconsidersȱthatȱaccessȱtoȱtimelyȱandȱ reliableȱ informationȱ onȱ theȱ financialȱ andȱ nonȬfinancialȱ performanceȱ ofȱ thoseȱ IPEȱassetsȱthatȱareȱsignificantȱorȱcriticalȱtoȱanȱentityȱisȱanȱimportantȱcomponentȱ ofȱeffectiveȱassetȱmanagement,ȱinȱparticular,ȱtoȱsupportȱinformedȱanalysisȱandȱ decisionȬmaking.ȱȱ 13. Thereȱwasȱlittleȱevidenceȱofȱstructuredȱorȱformalȱplanningȱinȱrelationȱtoȱ theȱ disposalȱ ofȱ IPEȱ assetsȱ amongstȱ theȱ auditedȱ entities.ȱ ȱ Rather,ȱ disposalȱ decisionsȱ wereȱ generallyȱ madeȱ onȱ anȱ adȬhocȱ basisȱ relyingȱ onȱ informationȱ obtainedȱ duringȱ otherȱ processes.ȱ Thisȱ included,ȱ forȱ example,ȱ observationsȱ madeȱduringȱtheȱconductȱofȱstocktakes,ȱinformationȱgainedȱfromȱmaintenanceȱ activitiesȱandȱassessmentsȱmadeȱduringȱassetȱacquisitionȱplanning.ȱ 14. Eachȱofȱtheȱassetȱacquisitionȱandȱdisposalȱtransactionsȱreviewedȱwereȱ foundȱtoȱhaveȱbeenȱproperlyȱapprovedȱandȱrecordedȱinȱtheȱassetȱregisterȱinȱaȱ timelyȱmanner.ȱȱForȱmostȱofȱtheseȱtransactions,ȱsufficientȱevidenceȱexistedȱtoȱ supportȱ orȱ justifyȱ theȱ decisionsȱ made.ȱ ȱ Inȱ particular,ȱ mostȱ ofȱ theȱ auditedȱ entitiesȱdemonstratedȱthatȱalternativesȱtoȱtheȱdisposalȱofȱassetsȱwereȱactivelyȱ consideredȱ duringȱ theȱ decisionȬmakingȱ process.ȱ ȱ Inȱ someȱ ofȱ theȱ auditedȱ entities,ȱtheȱANAOȱfoundȱaȱlackȱofȱconsistencyȱregardingȱtheȱlevelȱandȱnatureȱ ofȱdocumentationȱsupportingȱassetȱacquisitionȱandȱdisposalȱtransactions.ȱ 15. TheȱANAOȱhasȱmadeȱfiveȱrecommendationsȱdesignedȱtoȱstrengthenȱtheȱ arrangementsȱ forȱ theȱ managementȱ ofȱ IPEȱ assetsȱ inȱ Australianȱ Governmentȱ entities.ȱ
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 14 Entities’ comments 16. Eachȱ ofȱ theȱ auditedȱ entitiesȱ respondedȱ positivelyȱ toȱ theȱ reportȱ andȱ agreedȱwithȱeachȱofȱtheȱrecommendations.ȱȱCommentsȱprovidedȱbyȱtheȱentitiesȱ inȱ relationȱ toȱ theȱ recommendationsȱ haveȱ beenȱ includedȱ inȱ theȱ bodyȱ ofȱ theȱ report.ȱ ȱ Anyȱ furtherȱ generalȱ commentsȱ onȱ theȱ reportȱ haveȱ beenȱ includedȱ inȱ Appendixȱ3.ȱ Sound and better practices 17. Theȱfollowingȱtableȱoutlinesȱsoundȱandȱbetterȱpracticesȱfoundȱduringȱ theȱ audit.ȱ Theseȱ practicesȱ wereȱ consideredȱ beneficialȱ toȱ improvingȱ theȱ effectivenessȱofȱassetȱmanagementȱpracticesȱinȱtheȱauditedȱentities.ȱ Table 1 Sound and better practices Reference Description Policy and procedures One entity included information on risks, controls and examples of better practices in its asset policy and procedural documentation. Asset planning The draft asset plan in one entity included an analysis of its existing asset-base against a desirable or optimal asset base and a schedule of potential risks to, and their impact on, the effective use of assets. Asset acquisitions Two of the audited entities had developed standard forms for use in documenting asset acquisition decisions. The application of these forms was supported by clear and well-defined thresholds to assist staff determine the relevant acquisition category. Managing performance One entity included a number of asset-related performance indicators in its Portfolio Budget Statements. Asset disposals One entity required its staff, as part of the asset disposal decision-making process, to assess if the asset could be used by another area of the organisation. In these cases, the availability of the equipment was notified using an electronic bulletin board. In one entity, as part of the preparation of annual asset acquisition plans, staff reviewed IPE assets approaching the end of their estimated useful lives. Source: ANAO, based on audit findings.
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 15 Recommendations Theȱ followingȱ recommendationsȱ areȱ basedȱ onȱ theȱ findingsȱ ofȱ theȱ fieldworkȱ atȱ theȱ auditedȱ entities.ȱ ȱ Theȱ ANAOȱ considersȱ thatȱ theyȱ areȱ likelyȱ toȱ beȱ relevantȱ toȱ allȱ Australianȱ Governmentȱ entities.ȱ ȱ Allȱ entitiesȱ shouldȱ thereforeȱ assessȱ theȱ benefitsȱ ofȱ implementingȱtheȱrecommendationsȱinȱlightȱofȱtheirȱownȱcircumstances,ȱincludingȱtheȱ extentȱtoȱwhichȱeachȱrecommendation,ȱorȱpartȱthereof,ȱisȱaddressedȱbyȱpracticesȱalreadyȱ inȱplace.ȱȱ Recommendation No.1 Policies and proceduresȱ Para 2.16 TheȱANAOȱrecommendsȱentitiesȱinclude,ȱatȱaȱminimum,ȱ theȱ followingȱ informationȱ inȱ theirȱ assetȱ policyȱ andȱ proceduralȱdocumentation:ȱ x anȱ outlineȱ ofȱ theȱ assetȱ managementȱ principlesȱ relevantȱ toȱ theȱ entity,ȱ includingȱ guidanceȱ onȱ interpretingȱandȱapplyingȱthoseȱprinciples;ȱ x detailsȱ ofȱ keyȱ assetȱ managementȱ rolesȱ andȱ responsibilities;ȱandȱ x aȱ descriptionȱ ofȱ theȱ keyȱ policiesȱ andȱ practicesȱ relevantȱtoȱeachȱstageȱofȱtheȱassetȱlifeȬcycle.ȱ Recommendation No.2 Asset planning Para 2.26ȱ Theȱ ANAOȱ recommendsȱ entitiesȱ developȱ aȱ strategyȱ orȱ planȱ forȱ theȱ managementȱ ofȱ thoseȱ IPEȱ assetsȱ thatȱ areȱ criticalȱtoȱmeetingȱtheirȱbusinessȱobjectives.ȱ Recommendation No.3 Asset acquisitions Para 2.41ȱ Theȱ ANAOȱ recommendsȱ thatȱ entitiesȱ adopt,ȱ andȱ periodicallyȱ reȬassess,ȱ thresholdsȱ andȱ associatedȱ minimumȱ documentaryȱ requirementsȱ forȱ useȱ inȱ theȱ acquisitionȱofȱIPEȱassets.ȱ
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 16 Recommendation No.4 Managing performance Para 2.61ȱ Theȱ ANAOȱ recommends,ȱ forȱ thoseȱ IPEȱ assetsȱ thatȱ areȱ criticalȱtoȱmeetingȱtheirȱbusinessȱobjectives,ȱthatȱentities:ȱ x developȱ appropriateȱ performanceȱ indicators,ȱ addressingȱ bothȱ financialȱ andȱ nonȬfinancialȱ factors,ȱ toȱ measureȱ theȱ efficientȱ andȱ effectiveȱ operationȱofȱthoseȱassets;ȱandȱ x regularlyȱcapture,ȱmonitorȱandȱreportȱtoȱrelevantȱ managers,ȱ informationȱ onȱ achievementsȱ againstȱ thoseȱindicators.ȱ Recommendation No.5 Disposal planningȱ Para 2.73 Toȱ assistȱ inȱ theȱ identificationȱ ofȱ IPEȱ assetsȱ thatȱ mayȱ requireȱ disposal,ȱ theȱ ANAOȱ recommendsȱ thatȱ entitiesȱ regularlyȱ monitorȱ thoseȱ assetsȱ nearingȱ theȱ endȱ ofȱ theirȱ estimatedȱusefulȱlives.ȱ Entities’ responses to the recommendations 18. Theȱauditedȱentitiesȱagreedȱtoȱtheȱrecommendations.ȱȱWhereȱprovided,ȱ entities’ȱ additionalȱ responsesȱ toȱ theȱ recommendationsȱ areȱ providedȱ inȱ theȱ bodyȱofȱtheȱreport.ȱ ȱ
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 17 Audit Findings and Conclusions
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 18 ȱ
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 19 1. Introduction ThisȱChapterȱprovidesȱbackgroundȱinformationȱaboutȱtheȱaudit,ȱincludingȱdetailsȱofȱtheȱ auditȱscope,ȱobjectiveȱandȱfocus.ȱ Background to business support process audits 1.1 ThisȱauditȱisȱpartȱofȱaȱprogramȱofȱBusinessȱSupportȱProcessȱauditsȱthatȱ examineȱbusinessȱprocessesȱthatȱsupportȱtheȱdeliveryȱofȱservicesȱprovidedȱbyȱ AustralianȱGovernmentȱentities.ȱTheyȱareȱnormallyȱconductedȱatȱaȱselectionȱofȱ entitiesȱ underȱ theȱ provisionsȱ ofȱ sectionȱ 18ȱ ofȱ theȱ AuditorȬGeneralȱ Actȱ 1997,ȱ whichȱprovidesȱforȱtheȱexaminationȱofȱaȱparticularȱaspectȱofȱtheȱoperationsȱofȱ theȱ wholeȱ orȱ partȱ ofȱ theȱ Australianȱ Governmentȱ sector.ȱ Theȱ auditȱ recommendationsȱ areȱ framedȱ toȱ haveȱ generalȱ applications,ȱ andȱ theȱ auditȱ findingsȱareȱreportedȱtoȱParliamentȱinȱgenericȱterms,ȱwithoutȱbeingȱattributedȱ toȱ particularȱ entities.ȱ Whereȱ appropriate,ȱ referencesȱ toȱ soundȱ andȱ betterȱ practicesȱ haveȱ beenȱ includedȱ inȱ thisȱ report.ȱ Inȱ additionȱ toȱ thisȱ report,ȱ anȱ individualȱmanagementȱreportȱwasȱprovidedȱtoȱeachȱofȱtheȱentitiesȱexaminedȱ inȱtheȱaudit.ȱȱ Context of this audit Aȱ betterȱ service,ȱ notȱ aȱ betterȱ asset,ȱ isȱ aȱ keyȱ indicationȱ ofȱ successfulȱ assetȱ management.3ȱȱ 1.2 Infrastructure,ȱPlantȱandȱEquipmentȱ(IPE)ȱassets4ȱareȱaȱkeyȱresourceȱinȱ meetingȱbusinessȱobjectives.ȱTheȱeffectiveȱmanagementȱofȱIPEȱassetsȱinvolvesȱ theȱalignmentȱofȱassetȱplanningȱandȱdecisionȬmakingȱwithȱbusinessȱprioritiesȱ andȱstrategies.ȱSoundȱmanagementȱacrossȱtheȱassetȱlifeȬcycleȱfacilitatesȱbetterȱ decisionȬmakingȱ aboutȱ theȱ acquisition,ȱ ongoingȱ useȱ orȱ operationȱ andȱ ultimatelyȱ theȱ disposalȱ ofȱ assets,ȱ atȱ theȱ rightȱ timeȱ andȱ inȱ aȱ costȱ effectiveȱ manner.ȱ ȱ Asȱ wellȱ asȱ makingȱ aȱ keyȱ contributionȱ toȱ theȱ entity’sȱ business,ȱ informedȱ decisionsȱ aboutȱ assetsȱ alsoȱ assistȱ inȱ theȱ controlȱ ofȱ assetȬrelatedȱ expenditure.ȱ 1.3 TheȱAustralianȱGovernmentȱhasȱaȱsubstantialȱinvestmentȱinȱIPEȱassets.ȱȱ Asȱatȱ30ȱJuneȱ2005,ȱitȱreportedȱIPEȱassetsȱwithȱaȱgrossȱbookȱvalueȱofȱ$58ȱbillionȱ 3 Department of Treasury and Finance, Sustaining Our Assets, Victoria Government (Melbourne), 2000, p. 3. 4 As defined in Australian Accounting Standard AAS 36–Statement of Financial Position.
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 20 (netȱbookȱvalueȱ$32ȱbillion).5ȱȱEachȱyear,ȱAustralianȱGovernmentȱentitiesȱoutlayȱ considerableȱ fundsȱ acquiringȱ additionalȱ andȱ replacementȱ IPEȱ assets,ȱ andȱ chargesȱ substantialȱ depreciationȱ onȱ theirȱ IPEȱ assetsȱ holdings.ȱ ȱ Tableȱ 1.1ȱ illustratesȱ theȱ extentȱ ofȱ theseȱ transactionsȱ forȱ eachȱ ofȱ theȱ lastȱ threeȱ financialȱ years.ȱ Table 1.1 IPE asset acquisitions and depreciation expense 2004–05 $ billion 2003–04 $ billion 2002–03 $ billion Acquisitions 8.9 6.9 6.6 Depreciation 6.3 6.2 5.9 Source: Commonwealth of Australia Consolidated Financial Statements. 6 Asset management 1.4 Theȱ effectiveȱ managementȱ ofȱ IPEȱ assetsȱ entailsȱ integratingȱ assetȱ planningȱ withȱ theȱ entity’sȱ strategicȱ and/orȱ businessȱ planningȱ processes,ȱ togetherȱwithȱtheȱimplementationȱofȱsoundȱdecisionȬmakingȱprocessesȱacrossȱ eachȱ ofȱ theȱ phasesȱ ofȱ theȱ assetȱ lifeȬcycle.ȱ ȱ Aȱ strongȱ internalȱ controlȱ environment,ȱ includingȱ aȱ robustȱ recordȱ ofȱ theȱ entity’sȱ assetsȱ andȱ clearȱ andȱ informativeȱguidanceȱonȱassetȱpoliciesȱandȱprocedures,ȱshouldȱbeȱinȱplaceȱtoȱ supportȱtheseȱdecisionȬmakingȱprocesses.ȱȱTheȱperformanceȱofȱassetsȱandȱassetȱ managementȱ processesȱ shouldȱ alsoȱ beȱ regularlyȱ measuredȱ toȱ assistȱ inȱ theȱ assessmentȱofȱwhetherȱstrategiesȱandȱdecisionsȱcontinueȱtoȱbeȱappropriate.ȱ 5 These amounts comprise IPE assets owned and covered by finance lease arrangements, but exclude Specialist military equipment. The amounts have been extracted from Commonwealth of Australia, Consolidated Financial Statements for the year ending 30 June 2005. A copy of these financial statements is available from <http://www.finance.gov.au/publications>. 6 Commonwealth of Australia, Consolidated Financial Statements for the years ending 30 June 2003, 2004 and 2005, (Note 23A in 2003 and Note 25A in 2004 and 2005). A copy of these financial statements is available from <http://www.finance.gov.au/publications>.
Introduction ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 21 1.5 TheȱkeyȱelementsȱofȱassetȱmanagementȱareȱdemonstratedȱinȱFigureȱ1.1ȱ Figure 1.1 Asset management ASSET MANAGEMENT Control environment, including detailed policy and procedures and a robust record of assets Business strategies, priorities and Planning Assess business needs Analyse assets and key drivers Assess risks Acquisition Assess options and needs Assess lifecycle costs and risks Obtain approvals Operation Maintenance Safe custody Repairs Performance Disposal Surplus assets Assess options Transfers Obtain approvals Monitoring and reporting on progress and results Contributes to meeting business objectives objectives ȱ Source: Source: ANAO, adopted from information in Sustaining Our Assets, published by the Victorian Department of Treasury and Finance in December 2000. 1.6 Theȱ implementationȱ ofȱ anȱ effectiveȱ assetȱ managementȱ functionȱ can,ȱ amongstȱothersȱthings,ȱassistȱin:ȱ x maximisingȱtheȱserviceȱpotentialȱofȱexistingȱassets;ȱ x loweringȱtheȱoverallȱcostȱofȱowningȱandȱusingȱassets;ȱ x reducingȱtheȱdemandȱforȱnewȱassets;ȱandȱȱ x improvingȱassetȱperformanceȱandȱresultsȱbyȱestablishingȱclearȱlinesȱofȱ accountabilityȱandȱresponsibility.ȱ The principles of asset management 1.7 Adherenceȱ toȱ aȱ setȱ ofȱ commonȱ orȱ standardȱ principlesȱ isȱ widelyȱ acceptedȱ asȱ aȱ foundationȱ requirementȱ forȱ anȱ effectiveȱ assetȱ managementȱ framework.ȱȱAlthoughȱnotȱdefinitive,ȱtheȱANAOȱconsidersȱthatȱtheȱfollowingȱ
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 22 principlesȱ areȱ generallyȱ applicableȱ toȱ assetȱ managementȱ arrangementsȱ inȱ AustralianȱGovernmentȱentities:7ȱ x businessȱ requirementsȱ shouldȱ formȱ theȱ basisȱ for,ȱ andȱ guideȱ assetȱ managementȱpracticesȱandȱdecisionȬmaking;ȱ x planningȱ forȱ assetsȱ shouldȱ beȱ integratedȱ withȱ businessȱ planningȱ processes;ȱ x assetȱ acquisitionȱ orȱ investmentȱ decisionsȱ shouldȱ beȱ basedȱ onȱ anȱ evaluationȱofȱalternativesȱ(includingȱnonȬassetȱsolutions)ȱandȱtakeȱintoȱ accountȱcosts,ȱbenefitsȱandȱrisksȱacrossȱeachȱasset’sȱlifeȬcycle;ȱ x responsibilityȱ andȱ accountabilityȱ forȱ theȱ safeȱ custody,ȱ useȱ andȱ performanceȱofȱassetsȱshouldȱbeȱclearlyȱestablishedȱandȱcommunicated;ȱ x assetȱ disposalȱ decisionsȱ shouldȱ beȱ basedȱ onȱ anȱ analysisȱ ofȱ disposalȱ methodsȱandȱbeȱdesignedȱtoȱachieveȱtheȱbestȱavailableȱnetȱreturn;ȱandȱ x aȱrobustȱinternalȱcontrolȱstructureȱisȱrequiredȱtoȱsupportȱeffectiveȱassetȱ managementȱpractices.ȱ 1.8 Eachȱ entityȱ shouldȱ determine,ȱ basedȱ onȱ theȱ size,ȱ natureȱ andȱ characteristicsȱofȱitsȱassetȱholdings,ȱtheȱrelevanceȱofȱtheseȱprinciples,ȱincludingȱ theȱ extentȱ toȱ whichȱ anyȱ particularȱ principleȱ shouldȱ beȱ applied.ȱ ȱ Theseȱ principles,ȱandȱtheȱassociatedȱproceduresȱandȱpractices,ȱshouldȱbeȱappliedȱinȱaȱ costȱeffectiveȱmanner,ȱcommensurateȱwithȱeachȱentity’sȱassetȱholdings.ȱȱȱ Factors influencing asset management in the Australian Government Sector 1.9 Aȱrangeȱofȱinitiativesȱoverȱtheȱlastȱseveralȱyearsȱhasȱfurtherȱcontributedȱ toȱtheȱneedȱforȱgreaterȱdisciplineȱandȱmoreȱactiveȱandȱcarefulȱmanagementȱofȱ assets.ȱSomeȱofȱtheseȱfactorsȱareȱdiscussedȱbelow.ȱ Legislative requirements 1.10 Theȱ Financialȱ Managementȱ andȱ Accountabilityȱ Actȱ 1997ȱ (FMAȱ Act)ȱ setsȱ outȱ theȱ principlesȱ forȱ theȱ properȱ useȱ andȱ managementȱ ofȱ Commonwealthȱ resources.ȱ Ofȱ particularȱ relevanceȱ isȱ sectionȱ 44,ȱ whichȱ definesȱ properȱ useȱ toȱ meanȱefficient,ȱeffectiveȱandȱethicalȱuse.ȱȱIPEȱassetsȱclearlyȱfallȱwithinȱtheȱambitȱ 7 These principles are based on the ANAO’s research, including a review of the asset management principles adopted at other levels of government and the findings of this audit.
Introduction ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 23 ofȱ Commonwealthȱ resourcesȱ andȱ thereforeȱ shouldȱ beȱ subjectȱ toȱ prudentȱ managementȱinȱorderȱtoȱmeetȱtheseȱrequirements.ȱ 1.11 Whileȱ thereȱ isȱ noȱ equivalentȱ requirementȱ inȱ theȱ Commonwealthȱ Authoritiesȱ andȱ Companiesȱ Actȱ 1997ȱ (CACȱ Act),ȱ theȱ CACȱ Actȱ (Reportȱ onȱ Operations)ȱ Ordersȱ requireȱ details,ȱ bothȱ operationalȱ andȱ financial,ȱ ofȱ theȱ acquisitionȱandȱdisposalȱofȱnonȬcurrentȱassets,ȱincludingȱplantȱandȱequipmentȱ assets,ȱtoȱbeȱincludedȱinȱeachȱauthority’sȱannualȱreport.ȱ Accrual budgeting 1.12 Accrualȱ budgetingȱ recognisesȱ theȱ fullȱ costȱ ofȱ theȱ resourcesȱ usedȱ andȱ controlledȱbyȱanȱentity,ȱnotȱsimplyȱcashȱreceiptsȱandȱpayments.ȱȱAȱkeyȱelementȱ inȱtheȱsuccessfulȱintroductionȱofȱaccrualȱbudgetingȱisȱaȱbetterȱunderstanding,ȱ andȱ moreȱ activeȱ management,ȱ ofȱ assetsȱ andȱ theȱ attendantȱ costs.ȱ ȱ Effectivelyȱ meetingȱtheȱrequirementsȱassociatedȱwithȱaccrualȱbudgetingȱhasȱrequiredȱtheȱ introductionȱ ofȱ moreȱ structuredȱ assetȱ acquisitionȱ planningȱ processesȱ andȱ aȱ disciplinedȱapproachȱtoȱtheȱmanagementȱofȱassetȱreplacementȱfunding.ȱ 1.13 Underȱ theȱ accrualȱ budgetingȱ framework,ȱ moniesȱ appropriatedȱ toȱ AustralianȱGovernmentȱentitiesȱincludeȱfundsȱbasedȱonȱeachȱentity’sȱestimatedȱ annualȱ depreciationȱ expense.ȱ ȱ Theseȱ fundsȱ areȱ providedȱ toȱ supportȱ theȱ purchaseȱofȱreplacementȱassets.ȱȱTheȱfailureȱtoȱproperlyȱmanageȱtheseȱfundsȱ couldȱresultȱinȱanȱentityȱhavingȱinsufficientȱfundsȱavailable,ȱwithoutȱrecourseȱ toȱ fundsȱ earmarkedȱ forȱ otherȱ purposes,ȱ toȱ supportȱ theȱ maintenanceȱ ofȱ aȱ sufficientȱandȱappropriateȱassetȱbase.ȱȱ Financial reporting requirements 1.14 Australianȱ Governmentȱ entitiesȱ areȱ requiredȱ toȱ prepareȱ financialȱ statementsȱunderȱtheȱFMAȱAct,ȱtheȱCACȱActȱorȱtheȱCorporationsȱActȱ2001,ȱasȱ applicable.ȱȱTheseȱActs,ȱtogetherȱwithȱtheȱFinanceȱMinister’sȱOrdersȱ(FMOs),8ȱ setȱtheȱfinancialȱreportingȱframeworkȱforȱtheseȱentities.ȱ 1.15 Theȱ FMOs,ȱ whichȱ incorporateȱ Accountingȱ Standardsȱ andȱ otherȱ pronouncementsȱ ofȱ theȱ Australianȱ Accountingȱ Standardsȱ Boardȱ andȱ theȱ formerȱ Publicȱ Sectorȱ Accountingȱ Standardsȱ Board,ȱ areȱ designedȱ toȱ facilitateȱ 8 Each year the Minister for Finance and Administration issues requirements for the reporting of financial statements of Australian Government entities. These are issued as Finance Minister’s Orders, which comprise the Financial Management and Accountability (Financial Statement) Orders, the Commonwealth Authorities and Companies (Financial Statement) Orders and include the Requirements and Guidance for the Preparation of Financial Statements of Australian Government Entities. The FMOs have the force of law under section 63 of the Financial Management and Accountability Act 1997 and section 48 of the Commonwealth Authorities and Companies Act 1997 respectively.
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 24 consistencyȱofȱaccountingȱpoliciesȱacrossȱtheȱAustralianȱGovernment.ȱThisȱisȱ importantȱtoȱensureȱcomparabilityȱbetween,ȱandȱenhanceȱtheȱusefulnessȱof,ȱtheȱ financialȱreportsȱofȱAustralianȱGovernmentȱentities.ȱ 1.16 TheȱFMOsȱindicateȱthatȱtheȱefficientȱandȱeffectiveȱmanagementȱofȱnonȬ currentȱassetsȱisȱessentialȱtoȱtheȱdeliveryȱofȱoutputsȱandȱoutcomesȱandȱthatȱaȱ prerequisiteȱforȱeffectiveȱassetȱmanagementȱisȱaccessȱtoȱrelevant,ȱreliableȱandȱ timelyȱinformation.ȱȱInȱthisȱregard,ȱanȱimportantȱelementȱinȱtheȱdevelopmentȱ andȱmaintenanceȱofȱaccurateȱassetȱinformationȱisȱtheȱadoptionȱofȱsoundȱassetȬ accountingȱpractices.ȱ 1.17 Relevantȱ assetȬrelatedȱ financialȱ reportingȱ requirementsȱ addressedȱ inȱ theȱ FMOsȱ include:ȱ revaluations;ȱ impairmentȱ testing;ȱ andȱ theȱ analysisȱ (andȱ disclosure)ȱofȱassetȱmovements.ȱȱInȱaddition,ȱAppendixȱCȱofȱtheȱFMOsȱforȱtheȱ 2004–05ȱreportingȱperiod,ȱalsoȱcontainedȱdetailedȱguidanceȱonȱaȱrangeȱofȱassetȱ accountingȱ issues,ȱ includingȱ informationȱ onȱ recognitionȱ thresholds,ȱ measurementȱ ofȱ acquisitions,ȱ depreciation,ȱ revaluations,ȱ assetȱ salesȱ andȱ disposals,ȱ transfersȱ betweenȱ entitiesȱ andȱ capitalisingȱ (orȱ expensing)ȱ maintenanceȱcosts.9ȱ 1.18 Theȱincreasingȱlevelȱofȱknowledgeȱandȱdisciplineȱrequiredȱtoȱaddressȱ theseȱ assetȬaccountingȱ andȱ externalȱ financialȱ reportingȱ requirementsȱ isȱ alsoȱ likelyȱ toȱ haveȱ aȱ positiveȱ impactȱ onȱ theȱ developmentȱ ofȱ accurateȱ andȱ informativeȱinternalȱmanagementȱreports.ȱ Asset management audits by the ANAO 1.19 Sinceȱ1995,ȱtheȱANAOȱhasȱconductedȱaȱnumberȱofȱaudits,ȱasȱpartȱofȱitsȱ generalȱ performanceȱ auditȱ program,ȱ evaluatingȱ assetȱ managementȱ arrangements.ȱȱRelevantȱreportsȱareȱasȱfollows:ȱȱ x AssetȱManagementȱ–ȱReportȱNo.27,ȱ1995–96;ȱ x AssetȱManagementȱ–ȱReportȱNo.41,ȱ1997–98;ȱȱ x Disposalȱ ofȱ Infrastructure,ȱ Plantȱ andȱ Equipmentȱ –ȱ Reportȱ No.8,ȱ 2001–02;ȱ andȱ x PurchasingȱProceduresȱandȱPracticesȱ–ȱReportȱNo.57,ȱ2004–05.ȱ 9 These guidelines have not been included in the FMOs for the 2005–06 reporting period.
Introduction ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 25 1.20 Theȱaboveȱauditsȱfoundȱthatȱsoundȱassetȱmanagementȱpracticesȱwereȱ generallyȱ notȱ beingȱ consistentlyȱ applied.ȱ Inȱ particular,ȱ theȱ auditsȱ foundȱ thatȱ entitiesȱneededȱto:ȱ x adoptȱaȱstrategicȱapproachȱtoȱtheȱmanagementȱofȱassetsȱbyȱeffectivelyȱ integratingȱ theirȱ assetȱ planningȱ decisionsȱ intoȱ theirȱ corporateȱ andȱ resourceȱplanningȱframeworks;ȱ x introduceȱlifeȬcycleȱcostingȱmethodologies;ȱȱȱ x establishȱ baselineȱ costȱ andȱ performanceȱ standardsȱ forȱ keyȱ assetsȱ andȱ monitorȱoutcomesȱagainstȱtheseȱstandards;ȱ x implementȱ financialȱ managementȱ andȱ assetȱ managementȱ systemsȱ whichȱ facilitateȱ theȱ routineȱ captureȱ andȱ reportingȱ ofȱ performanceȱ informationȱforȱmanagementȱpurposes;ȱandȱ x makeȱ assetȱ disposalȱ decisionsȱ withinȱ aȱ frameworkȱ thatȱ includesȱ theȱ regularȱ monitoringȱ ofȱ theȱ conditionȱ andȱ performanceȱ ofȱ assetsȱ andȱ replacementȱplanning.ȱ Audit objective, criteria and approach Audit objective 1.21 Theȱ objectiveȱ ofȱ theȱ auditȱ wasȱ toȱ assessȱ whetherȱ selectedȱ Australianȱ Governmentȱ entitiesȱ wereȱ effectivelyȱ supportingȱ theirȱ businessȱ requirementsȱ throughȱtheȱplanningȱandȱmanagementȱofȱtheȱacquisition,ȱdisposalȱandȱuseȱofȱ theirȱIPEȱassets.ȱȱ Audit criteria 1.22 Theȱauditȱreviewedȱeachȱentity’sȱpoliciesȱandȱpracticesȱagainstȱaȱseriesȱ ofȱauditȱcriteriaȱacrossȱtheȱfollowingȱcomponentsȱofȱassetȱmanagement:ȱcontrolȱ environment;ȱplanning;ȱacquisitions;ȱoperations;ȱandȱdisposals.ȱ 1.23 TheȱauditȱcriteriaȱwereȱdevelopedȱfollowingȱaȱreviewȱofȱtheȱANAO’sȱ earlierȱassetȱmanagementȱaudits,ȱandȱaȱreviewȱofȱassetȱmanagementȱpractices,ȱ bothȱinȱotherȱAustralianȱGovernmentȱjurisdictionsȱandȱalsoȱinternationally.ȱInȱ particular,ȱtheȱfollowingȱpublicationsȱwereȱused:ȱ
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 26 x Strategicȱ Assetȱ Managementȱ Guidelinesȱ –ȱ producedȱ byȱ theȱ Queenslandȱ StateȱGovernmentȱinȱ2002;ȱ10ȱȱ x SustainingȱourȱAssetsȱ–ȱproducedȱbyȱtheȱVictorianȱStateȱGovernmentȱinȱ 2000;ȱ11ȱandȱ x TotalȱAssetȱManagementȱpolicyȱpaperȱandȱvariousȱsupportingȱguidelinesȱ –ȱproducedȱbyȱtheȱNewȱSouthȱWalesȱStateȱGovernmentȱinȱ2004.ȱ12ȱ 1.24 TheȱdetailedȱauditȱcriteriaȱareȱshownȱinȱAppendixȱ1.ȱ Approach 1.25 Inȱ eachȱ ofȱ theȱ auditedȱ entities,ȱ fieldworkȱ involvedȱ interviewsȱ withȱ aȱ numberȱofȱtheȱentity’sȱofficers,ȱgeneralȱobservations,ȱreviewȱofȱrelevantȱpolicyȱ andȱproceduralȱdocumentationȱandȱtheȱexaminationȱofȱdocumentationȱrelatingȱ toȱ aȱ selectionȱ ofȱ assetȱ acquisitionȱ andȱ disposalȱ transactions.ȱ Inȱ thoseȱ entitiesȱ whereȱsignificantȱassetȱmanagementȱfunctionsȱwereȱprovidedȱunderȱcontract,ȱ theȱ auditȱ reviewedȱ processesȱ forȱ theȱ managementȱ ofȱ theȱ deliveryȱ ofȱ thoseȱ services.ȱȱ Audit coverage 1.26 Theȱauditȱwasȱconductedȱatȱthatȱfollowingȱentities:ȱ13ȱ x AustralianȱFilm,ȱTelevisionȱandȱRadioȱSchool;ȱ x AustralianȱTradeȱCommission;ȱ x Departmentȱ ofȱ Immigrationȱ andȱ Multiculturalȱ Affairsȱ (formerlyȱ DepartmentȱofȱImmigrationȱandȱMulticulturalȱandȱIndigenousȱAffairs);ȱ andȱ x DepartmentȱofȱParliamentaryȱServices.ȱȱ 10 This document can be accessed from the web site of the Queensland Department of Public Works. Refer to <http://www.build.qld.gov.au/amps/amps02.asp>. 11 This document can be accessed from the web site of the Victorian Department of Treasury and Finance. Refer to <http://www.dtf.vic.gov.au/dtf/rwp323.nsf/search/D62EBFC40F8477C805256A9A00726104?op endocument&Expand=7.2&>. 12 These documents can be accessed from web site of the NSW Treasury Department. Refer to <http://www.treasury.nsw.gov.au/tam/tam-intro.htm>. 13 These entities contained a good cross section of IPE asset classes, including general administrative or office equipment, furniture, fixtures, security equipment, information technology equipment, specialised communications equipment, motor vehicles and other specialised equipment.
Introduction ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 27 1.27 Detailsȱofȱrelevantȱfinancialȱinformationȱforȱtheȱ2004–05ȱfinancialȱyearȱ forȱeachȱofȱtheȱauditedȱentitiesȱareȱshownȱinȱFigureȱ1.2.ȱȱDetailsȱofȱdisposalsȱ haveȱnotȱbeenȱincludedȱinȱFigureȱ1.2ȱasȱtheȱamountȱofȱdisposalsȱatȱeachȱofȱtheȱ auditedȱentitiesȱduringȱ2004–05ȱwasȱnotȱsignificant.ȱ Figure 1.2 Gross and Net book values of IPE assets at 30 June 2005, together with the value of IPE asset acquisitions for the year ended 30 June 2005 - 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 Entity 1 Entity 2 Entity 3 Entity 4 Entities Amount in $'M Gross Net Acquisitions Source: Entity annual reports for year ending June 30, 2005. 1.28 Eachȱofȱtheȱauditedȱentitiesȱwasȱprovidedȱwithȱaȱmanagementȱreportȱ detailingȱ theȱ auditȱ findings,ȱ recommendationsȱ forȱ improvement,ȱ whereȱ appropriate,ȱandȱconclusionsȱarisingȱfromȱtheȱfieldworkȱspecificȱtoȱthem.ȱȱȱȱ 1.29 Theȱ auditȱ wasȱ undertakenȱ inȱ accordanceȱ withȱ theȱ ANAO’sȱ Auditingȱ Standardsȱandȱwasȱcompletedȱatȱaȱcostȱofȱ$278ȱ000.ȱ
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 28 2. Audit findings – Management of Infrastructure, Plant and Equipment Assets Thisȱchapterȱoutlinesȱtheȱresultsȱofȱtheȱauditȱagainstȱtheȱfollowingȱcomponentsȱofȱassetȱ management:ȱcontrolȱenvironment;ȱplanning;ȱacquisitions;ȱoperations;ȱandȱdisposals.ȱ Itȱalsoȱincludesȱanyȱsoundȱandȱbetterȱpracticesȱidentifiedȱduringȱtheȱauditȱandȱtheȱfiveȱ recommendationsȱ madeȱ toȱ improveȱ theȱ managementȱ ofȱ IPEȱ assetsȱ inȱ Australianȱ Governmentȱentitiesȱȱȱ Introduction 2.1 Theȱ effectiveȱ managementȱ ofȱ IPEȱ assetsȱ isȱ generallyȱ characterisedȱ byȱ theȱ existenceȱ ofȱ formalȱ andȱ structuredȱ planningȱ processesȱ toȱ determineȱ theȱ directionȱ andȱ prioritiesȱ ofȱ assetȱ managementȱ activity.ȱ ȱ Planningȱ shouldȱ beȱ supportedȱbyȱsoundȱdecisionȬmakingȱpracticesȱacrossȱtheȱassetȱlifeȬcycle,ȱthatȱ is,ȱacquisition,ȱoperationȱandȱdisposal.ȱȱUnderpinningȱtheseȱdecisionȬmakingȱ practicesȱ shouldȱ beȱ aȱ strongȱ controlȱ environment,ȱ incorporatingȱ aȱ robustȱ recordȱ ofȱ theȱ entity’sȱ assetsȱ andȱ clearȱ andȱ informativeȱ assetȱ policyȱ andȱ proceduralȱdocuments.ȱȱȱ Control environment Introduction 2.2 Aȱrobustȱandȱstructuredȱcontrolȱenvironmentȱisȱimportantȱtoȱunderpinȱ andȱsupportȱtheȱmanagementȱofȱIPEȱassets.ȱInȱthisȱpartȱofȱtheȱaudit,ȱtheȱANAOȱ assessedȱwhetherȱtheȱfollowingȱelementsȱwereȱinȱplace:ȱ x comprehensive,ȱ clearȱ andȱ readilyȱ accessibleȱ policiesȱ andȱ procedures,ȱ coveringȱeachȱstageȱofȱtheȱassetȱlifeȬcycle;ȱandȱ x aȱ formalȱ andȱ secureȱ recordȱ ofȱ assetȱ information,ȱ providingȱ accurate,ȱ reliableȱandȱtimelyȱinformationȱonȱtheȱentity’sȱassetȱholdings.ȱ Policies and procedures 2.3 Informativeȱ andȱ upȬtoȬdateȱ policyȱ andȱ proceduralȱ documentationȱ isȱ importantȱ toȱ fosterȱ consistencyȱ ofȱ understanding,ȱ interpretationȱ andȱ soundȱ practicesȱthroughoutȱtheȱentity.ȱTheȱabsenceȱofȱadequateȱguidanceȱmaterialȱcanȱ inferȱaȱlackȱofȱsupportȱfor,ȱandȱcanȱleadȱtoȱinconsistenciesȱin,ȱdecisionȬmakingȱ
Audit findings – Management of Infrastructure, Plant and Equipment Assets ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 29 byȱ lineȱ managers.ȱ ȱ Inȱ relationȱ toȱ assets,ȱ theȱ absenceȱ ofȱ effectiveȱ guidanceȱ increasesȱtheȱrisksȱof:ȱ x inappropriateȱorȱexcessiveȱassetsȱbeingȱacquired;ȱ x assetsȱnotȱbeingȱproperlyȱrecordedȱinȱtheȱassetȱregister;ȱ x assetsȱnotȱbeingȱeffectivelyȱutilisedȱandȱmaintained;ȱandȱ x assetsȱbeingȱdisposedȱofȱinappropriately.ȱ Audit findings 2.4 Theȱ auditȱfoundȱthatȱeachȱofȱtheȱauditedȱentitiesȱhad,ȱorȱwereȱinȱtheȱ processȱofȱupdating,ȱpolicyȱandȱproceduralȱmaterialȱcontainingȱinformationȱonȱ assetȬrelatedȱ operationalȱ matters.ȱ ȱ Thisȱ documentationȱ includedȱ informationȱ onȱ stocktakeȱ processes,ȱ maintainingȱ theȱ assetȱ registerȱ andȱ detailsȱ ofȱ theȱ administrativeȱ requirementsȱ forȱ theȱ acquisitionȱ andȱ disposalȱ ofȱ assets.ȱ ȱ Thisȱ latterȱ componentȱ includedȱ guidanceȱ onȱ theȱ requirementsȱ ofȱ theȱ Commonwealthȱ Procurementȱ Guidelinesȱ (CPGs),ȱ informationȱ onȱ criticalȱ aspectsȱofȱdecisionȬmakingȱandȱdetailsȱofȱapprovalȱprocesses.ȱOneȱentityȱalsoȱ included,ȱ forȱ eachȱ majorȱ operationalȱ element,ȱ informationȱ onȱ risks,ȱ controlsȱ andȱexamplesȱofȱbetterȱpractices.ȱThisȱwasȱconsideredȱtoȱbeȱanȱexampleȱofȱaȱ soundȱandȱbetterȱpractice.ȱ 2.5 However,ȱassetȱpolicyȱandȱproceduralȱmaterialȱshouldȱcoverȱmoreȱthenȱ operationalȱaspects.ȱȱItȱshouldȱalsoȱaddressȱtheȱmoreȱstrategicȱissuesȱassociatedȱ withȱtheȱmanagementȱofȱassets,ȱincludingȱtheȱfollowing:ȱ x anȱ outlineȱ ofȱ theȱ assetȱ managementȱ principlesȱ relevantȱ toȱ theȱ entity;ȱ includingȱ guidanceȱ toȱ staffȱ onȱ theȱ interpretationȱ andȱ applicationȱ ofȱ theseȱprinciples;14ȱ x clarificationȱofȱkeyȱassetȱmanagementȱrolesȱandȱresponsibilities;ȱ x descriptionȱ ofȱ theȱ majorȱ assetȱ managementȱ practicesȱ required,ȱ orȱ inȱ place,ȱacrossȱeachȱphaseȱofȱtheȱassetȱlifeȬcycle;ȱandȱ x informationȱonȱprocessesȱforȱmonitoringȱtheȱperformanceȱofȱassets.ȱ 2.6 Theȱ extentȱ toȱ whichȱ thisȱ typeȱ ofȱ informationȱ shouldȱ beȱ addressedȱ inȱ assetȱ policyȱ andȱ proceduralȱ documentationȱ dependsȱ onȱ theȱ volume,ȱ natureȱ andȱ significanceȱ ofȱ theȱ entity’sȱ assets.ȱ ȱ Atȱ theȱ timeȱ ofȱ theȱ audit,ȱ theȱ ANAOȱ 14 Those principles generally applicable to Australian Government entities are discussed at paragraph 1.7 of this report.
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 30 consideredȱ thatȱ theȱ assetȱ policyȱ andȱ proceduralȱ documentationȱ ofȱ onlyȱ oneȱ entityȱadequatelyȱaddressedȱtheseȱbroaderȱissues.ȱ 2.7 Appendixȱ2ȱsetsȱoutȱanȱoutlineȱofȱtheȱsuggestedȱcontentȱofȱassetȱpolicyȱ andȱ proceduralȱ documentȱ thatȱ isȱ likelyȱ toȱ beȱ relevantȱ toȱ manyȱ Australianȱ Governmentȱentities.ȱ 2.8 Inȱeachȱofȱtheȱauditedȱentities,ȱassetȱpolicyȱandȱproceduralȱmaterialȱwasȱ readilyȱavailableȱtoȱstaffȱthroughȱtheȱentity’sȱintranet.ȱȱAdditionally,ȱeachȱofȱtheȱ entitiesȱhadȱstructuredȱprocessesȱinȱplaceȱforȱmaintainingȱtheȱcurrencyȱofȱitsȱ assetȱpolicyȱandȱproceduralȱmaterial.ȱȱTwoȱofȱtheȱentitiesȱreviewedȱtheirȱpolicyȱ andȱ proceduralȱ materialȱ atȱ fixedȱ intervals.ȱ ȱ Inȱ theȱ remainingȱ twoȱ entities,ȱ relevantȱstaffȱmembersȱhadȱbeenȱnominatedȱasȱresponsibleȱforȱmaintainingȱtheȱ currencyȱ ofȱ materialȱ asȱ theȱ needȱ arose.ȱ ȱ Inȱ eachȱ ofȱ theȱ auditedȱ entities,ȱ theȱ ANAOȱidentifiedȱthatȱassetȱpolicyȱhadȱrecentlyȱbeen,ȱorȱwasȱinȱtheȱprocessȱofȱ beingȱ updated,ȱ toȱ reflectȱ changesȱ inȱ theȱ entity’sȱ operatingȱ environmentȱ orȱ practices.ȱ ȱ Forȱ example,ȱ assetȱ policyȱ hadȱ beenȱ updatedȱ toȱ reflectȱ theȱ requirementsȱ ofȱ theȱ newȱ CPGs15ȱ and,ȱ inȱ oneȱ case,ȱ wasȱ beingȱ updatedȱ atȱ theȱ timeȱ ofȱ theȱ audit,ȱ toȱ includeȱ moreȱ guidanceȱ toȱ staffȱ onȱ theȱ managementȱ ofȱ assets.ȱ Asset recording Asset registers 2.9 Aȱrobustȱassetȱregisterȱisȱfundamentalȱtoȱtheȱmaintenanceȱofȱaȱcompleteȱ andȱaccurateȱrecordȱofȱassetȱholdings,ȱandȱtoȱsupportȱeffectiveȱassetȱdecisionȬ making.ȱ ȱ Anȱ assetȱ registerȱ shouldȱ beȱ theȱ primeȱ sourceȱ ofȱ assetȱ information,ȱ includingȱthatȱrequiredȱtoȱsatisfyȱfinancialȱstatementȱreportingȱrequirements.ȱȱ Theȱ assetȱ registerȱ shouldȱ beȱ structuredȱ andȱ meetȱ theȱ variousȱ informationȱ requirementsȱofȱassetȱmanagersȱthroughoutȱtheȱentity.ȱ 2.10 Whileȱ theȱ contentȱ ofȱ theȱ assetȱ registerȱ willȱ largelyȱ dependȱ onȱ theȱ quantityȱ andȱ natureȱ ofȱ assetsȱ heldȱ byȱ theȱ entity,ȱ itȱ should,ȱ inȱ broadȱ terms,ȱ containȱinformationȱsuchȱas:ȱ x identity:ȱincludesȱdescription,ȱserialȱnumber,ȱuniqueȱassetȱnumber;ȱȱ x accounting:ȱincludesȱcostȱandȱdateȱofȱacquisition,ȱlifeȬcycleȱ(usefulȱlife),ȱ depreciationȱ rate,ȱ depreciationȱ amount,ȱ residualȱ value,ȱ associatedȱ liabilities;ȱdetailsȱofȱrevaluationsȱandȱdisposalȱconsideration;ȱ 15 The new CPGs were introduced in January 2005.
Audit findings – Management of Infrastructure, Plant and Equipment Assets ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 31 x ownership:ȱ includingȱ location,ȱ custodian,ȱ specialȱ identifiers,ȱ covenantsȱ orȱrestrictions;ȱandȱ x performance:ȱ listingȱ ofȱ performanceȱ measuresȱ orȱ indicators,ȱ suchȱ asȱ capacityȱorȱlifeȬcycle,ȱcondition,ȱusageȱlevelsȱandȱcostsȱofȱoperating.ȱ Audit findings 2.11 Eachȱofȱtheȱauditedȱentitiesȱmaintainedȱaȱformalȱrecordȱofȱtheirȱassetȱ holdings.ȱȱInȱthreeȱofȱtheȱentitiesȱtheȱassetȱregisterȱwasȱintegratedȱwithȱtheirȱ FinancialȱManagementȱInformationȱSystemȱ(FMIS).ȱȱTheȱlackȱofȱintegrationȱinȱ theȱremainingȱentityȱmeantȱthatȱacquisitionȱandȱdisposalȱinformationȱhadȱtoȱbeȱ separatelyȱinputȱintoȱbothȱsystems.ȱȱ 2.12 Theȱauditȱfoundȱthatȱtheȱassetȱregisterȱinȱeachȱofȱtheȱauditedȱentitiesȱ containedȱ anȱ appropriateȱ levelȱ ofȱ informationȱ inȱ relationȱ toȱ theȱ followingȱ factorsȱ identifiedȱ above:ȱ identity;ȱ accounting;ȱ andȱ ownership.ȱ ȱ Noneȱ ofȱ theȱ entitiesȱ recordedȱ informationȱ onȱ theȱ performanceȱ ofȱ individualȱ assetsȱ inȱ theirȱ assetȱregister.16ȱ 2.13 ȱTheȱ auditȱ alsoȱ foundȱ thatȱ eachȱ ofȱ theȱ auditedȱ entitiesȱ hadȱ generallyȱ soundȱprocessesȱforȱmaintainingȱtheȱaccuracyȱandȱcompletenessȱofȱtheirȱassetȱ register.ȱȱThisȱincludedȱcontrolsȱtoȱfacilitateȱtheȱpromptȱrecordingȱofȱauthorisedȱ assetȱ acquisitionȱ andȱ disposalȱ transactions,ȱ theȱ conductȱ ofȱ regularȱ reconciliationsȱ betweenȱ theȱ assetȱ registerȱ andȱ theȱ generalȱ ledgerȱ andȱ undertakingȱregularȱ(generallyȱannual)ȱassetȱstocktakes.ȱ 2.14 Anotherȱ factorȱ contributingȱ toȱ theȱ effectiveȱ maintenanceȱ ofȱ anȱ assetȱ registerȱ isȱ clarityȱ ofȱ responsibilities.ȱ ȱ Inȱ eachȱ entityȱ responsibilityȱ forȱ theȱ maintenanceȱ ofȱ theȱ assetȱ registerȱ wasȱ clearlyȱ established.ȱ ȱ Generally,ȱ responsibilityȱresidedȱwithȱaȱspeciallyȱdesignatedȱassetȱteamȱorȱofficer.ȱȱInȱoneȱ largeȱentity,ȱoperatingȱinȱaȱdevolvedȱenvironment,ȱindividualȱstateȱofficesȱwereȱ responsibleȱforȱmaintainingȱtheirȱownȱassetȱregisters.ȱȱInȱthisȱcase,ȱsomeȱcontrolȱ wasȱstillȱexercisedȱbyȱaȱcentralisedȱassetȱteam,ȱthroughȱtheȱconductȱofȱperiodicȱ qualityȱreviewȱchecksȱofȱtheȱtransactionsȱprocessedȱtoȱtheseȱregisters.ȱȱ 2.15 Overall,ȱtheȱANAOȱassessedȱtheȱinformationȱinȱtheȱassetȱregistersȱatȱtheȱ auditedȱentitiesȱtoȱbeȱreliable.ȱȱHowever,ȱitȱdidȱfindȱaȱnumberȱofȱinstancesȱofȱ breakdownsȱ inȱ theȱ controlsȱ overȱ theȱ accuracyȱ andȱ completenessȱ ofȱ information.ȱȱTheseȱincluded:ȱ 16 The use and reporting of performance information is discussed further at paragraphs 2.49 to 2.62.
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 32 x delaysȱ inȱ theȱ resolutionȱ ofȱ errorsȱ andȱ omissionsȱ identifiedȱ duringȱ stocktakes;ȱȱ x inappropriateȱ levelsȱ ofȱ userȬaccessȱ toȱ assetȱ records,ȱ includingȱ potentiallyȱincompatibleȱfunctions;ȱandȱ x lackȱofȱtimelinessȱofȱprocessingȱassetsȱdisposedȱofȱatȱauction.ȱ Recommendation No.1 2.16 TheȱANAOȱrecommendsȱentitiesȱinclude,ȱasȱaȱminimum,ȱtheȱfollowingȱ informationȱinȱtheirȱassetȱpolicyȱandȱproceduralȱdocumentation:ȱ x anȱ outlineȱ ofȱ theȱ assetȱ managementȱ principlesȱ relevantȱ toȱ theȱ entity,ȱ includingȱguidanceȱonȱinterpretingȱandȱapplyingȱtheseȱprinciples;ȱ x detailsȱofȱkeyȱassetȱmanagementȱrolesȱandȱresponsibilities;ȱandȱ x aȱdescriptionȱofȱtheȱkeyȱpoliciesȱandȱpracticesȱrelevantȱtoȱeachȱstageȱofȱ theȱassetȱlifeȬcycle.ȱ Entities’ responses 2.17 Eachȱofȱtheȱauditedȱentitiesȱagreedȱwithȱtheȱrecommendation.ȱ Asset planning Introduction 2.18 Eachȱ entityȱ shouldȱ carefullyȱ assess,ȱ inȱ lightȱ ofȱ theȱ size,ȱ natureȱ andȱ significanceȱ ofȱ itsȱ assetȱ holdingsȱ (includingȱ theȱ criticalityȱ ofȱ thoseȱ assetsȱ toȱ meetingȱ itsȱ businessȱ objectives)ȱ theȱ extentȱ andȱ natureȱ ofȱ assetȱ planningȱ required.ȱ 2.19 Theȱ developmentȱ ofȱ anȱ assetȱ strategyȱ orȱ planȱ shouldȱ assistȱ inȱ coordinatingȱ theȱ identificationȱ andȱ implementationȱ ofȱ assetȱ managementȱ prioritiesȱ andȱ practices.ȱ ȱ Moreȱ specifically,ȱ theȱ planȱ shouldȱ beȱ designedȱ toȱ assistȱ theȱ entityȱ assessȱ whetherȱ theȱ volume,ȱ natureȱ andȱ compositionȱ ofȱ itsȱ assetsȱremainȱappropriateȱfor,ȱandȱcompatibleȱwith,ȱitsȱbusinessȱrequirements.ȱȱȱȱ 2.20 Effectiveȱassetȱplanningȱhelpsȱorganisationȱtoȱbetterȱalignȱtheirȱassetsȱ withȱtheirȱbusinessȱrequirements.ȱȱForȱexample,ȱeffectiveȱformalȱplanningȱcanȱ assistȱin:ȱ
Audit findings – Management of Infrastructure, Plant and Equipment Assets ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 33 x identifyingȱ assetsȱ thatȱ doȱ notȱ adequatelyȱ support,ȱ orȱ whichȱ lackȱ theȱ capacityȱorȱfunctionalityȱtoȱadequatelyȱaddress,ȱbusinessȱrequirementsȱ orȱoperatingȱstandards;ȱ x identifyingȱexcessȱassetȱcapacityȱand/orȱfunctionality;ȱ x managingȱtheȱdemandȱforȱnewȱassets;ȱ x identifyingȱandȱcontrollingȱfutureȱassetȬrelatedȱcosts;ȱandȱ x maintainingȱandȱusingȱexistingȱassetsȱmoreȱeffectively.ȱ 2.21 Theȱlevelȱofȱassetȱplanning,ȱincludingȱtheȱstructureȱandȱlevelȱofȱdetailȱinȱ anȱassetȱmanagementȱplanȱwillȱdependȱlargelyȱonȱtheȱvolumeȱandȱnatureȱofȱ eachȱentity’sȱassets,ȱasȱwellȱasȱitsȱoperatingȱenvironment.ȱȱTableȱ2.1ȱoutlinesȱtheȱ betterȱpracticeȱelementsȱofȱanȱassetȱplan.ȱ Table 2.1 Contents of an asset plan Component Description Identification of business requirements and priorities Asset management decisions should be guided by a clear understanding of the entity’s business requirements, including service levels and standards, priorities and stakeholder expectations. Analysis of existing assets This involves matching the performance of existing assets against the entity’s business requirements, in the context of available resources, and developing strategies to deal with any gaps identified between the existing asset portfolio and the optimum level and type of assets. Analysis of critical drivers The critical drivers or elements in the delivery of the asset management function should be outlined, including details of related plans, priorities, activities and responsibilities across each stage of the asset life- cycle. Risk assessment Asset management decisions should be made in light of an analysis and evaluation of the risks to the entity’s business associated with the acquisition, use and disposal of assets. Performance measures Details of the measures and mechanisms used to assess the performance of the strategies in the asset management plan, and the performance of individual asset classes in supporting the entity’s business. Source: ANAO, based on information in Asset Strategy Planning (TAM04-1), Total Asset Management Guidelines, published by the NSW Treasury in September 2004.
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 34 Audit findings 2.22 Theȱ auditȱ foundȱ anȱ increasingȱ levelȱ ofȱ attentionȱ beingȱ givenȱ toȱ assetȱ planningȱ inȱ theȱ entitiesȱ audited.ȱ ȱ Forȱ example,ȱ atȱ theȱ timeȱ ofȱ theȱ audit,ȱ theȱ developmentȱofȱformalȱassetȱstrategiesȱorȱplansȱwasȱatȱanȱadvancedȱstageȱinȱ threeȱofȱtheȱentities.ȱȱOneȱentityȱwasȱupdatingȱandȱrevisingȱanȱexistingȱassetȱ plan,ȱwhileȱinȱtheȱotherȱtwoȱentities,ȱtheȱplansȱunderȱdevelopmentȱwereȱnewȱ initiatives.ȱ 2.23 Basedȱonȱtheȱproposedȱscopeȱofȱtheirȱassetȱplans,ȱandȱgivenȱtheȱworkȱ alreadyȱ completed,ȱ theȱ ANAOȱ assessedȱ thatȱ theȱ plansȱ inȱ twoȱ ofȱ theȱ entitiesȱ hadȱ theȱ potential,ȱ onceȱ theyȱ wereȱ finalised,ȱ toȱ beȱ usefulȱ toolsȱ inȱ theȱ managementȱofȱtheȱentity’sȱassets.ȱȱInȱparticular,ȱtheseȱplansȱcontained:ȱ x anȱoutlineȱofȱassetȱmanagementȱrolesȱandȱresponsibilities;ȱ x aȱ clearȱ linkȱ toȱ corporateȱ andȱ businessȱ planning,ȱ includingȱ theȱ identificationȱofȱthoseȱbusinessȱobjectivesȱrequiringȱtheȱsupportȱofȱIPEȱ assets;ȱ x anȱanalysisȱofȱcurrentȱandȱfutureȱissuesȱandȱprioritiesȱimpactingȱonȱtheȱ demandȱ forȱ assets,ȱ includingȱ emergingȱ technologiesȱ andȱ evolvingȱ stakeholderȱrequirements;ȱandȱ x identificationȱofȱtheȱcriticalȱdriversȱrelatingȱtoȱtheȱuseȱandȱmanagementȱ ofȱ assets,ȱ includingȱ guidanceȱ onȱ interpretingȱ andȱ applyingȱ policiesȱ acrossȱtheȱassetȱlifeȬcycle.ȱ 2.24 Inȱaddition,ȱtheȱassetȱmanagementȱplanȱbeingȱdevelopedȱinȱoneȱofȱtheseȱ entitiesȱcontainedȱanȱanalysisȱofȱitsȱexistingȱassetȱbaseȱagainstȱaȱdesirableȱorȱ optimalȱassetȱbase.ȱȱSuchȱanȱassessmentȱwasȱconsideredȱtoȱbeȱaȱusefulȱinitiativeȱ andȱisȱpotentially,ȱonceȱtheȱplanȱisȱfinalisedȱandȱapproved,ȱaȱvaluableȱsourceȱofȱ informationȱ aboutȱ theȱ entity’sȱ assets.ȱ Forȱ example,ȱ theȱ assessmentȱ couldȱ beȱ usedȱ toȱ assistȱ inȱ theȱ identificationȱ ofȱ assetsȱ thatȱ needȱ toȱ beȱ upgraded,ȱ supplementedȱ orȱ replaced.ȱ ȱ Itȱ couldȱ alsoȱ assistȱ inȱ assessingȱ theȱ degreeȱ ofȱ ongoingȱ maintenanceȱ necessaryȱ toȱ maintainȱ anȱ appropriateȱ assetȱ base.ȱ ȱ Theȱ analysisȱwasȱundertakenȱacrossȱtheȱfollowingȱdimensions:ȱȱ x serviceȱ dependency:ȱ theȱ extentȱ toȱ whichȱ theȱ entityȱ isȱ dependentȱ onȱ itsȱ assets;ȱȱ x utilisation:ȱhowȱeffectivelyȱexistingȱassetsȱareȱbeingȱutilised;ȱȱ x location:ȱareȱsufficientȱassetsȱinȱtheȱcorrectȱlocations;ȱȱ x capacity:ȱisȱthereȱsufficientȱcapacityȱamongstȱexistingȱassets;ȱandȱȱ x functionality:ȱareȱexistingȱassetsȱsuitableȱtoȱsupportȱtheȱbusiness.ȱ
Audit findings – Management of Infrastructure, Plant and Equipment Assets ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 35 2.25 Theȱdraftȱplanȱalsoȱcontainedȱaȱscheduleȱofȱpotentialȱrisksȱto,ȱandȱtheirȱ impactȱon,ȱtheȱeffectiveȱuseȱofȱassets.ȱȱTheȱidentificationȱofȱtheȱrisksȱassociatedȱ withȱtheȱuseȱofȱassetsȱisȱcriticalȱinȱassistingȱentitiesȱtoȱminimiseȱdisruptionsȱtoȱ businessȱ from,ȱ forȱ example,ȱ assetȱ breakdowns.ȱ ȱ Itȱ canȱ alsoȱ beȱ usefulȱ inȱ reducingȱunplannedȱassetȬrelatedȱexpenditure.ȱȱȱ Recommendation No.2 2.26 Theȱ ANAOȱ recommendsȱ entitiesȱ developȱ aȱ strategyȱ orȱ planȱ forȱ theȱ managementȱ ofȱ thoseȱ IPEȱ assetsȱ thatȱ areȱ criticalȱ toȱ meetingȱ theirȱ businessȱ objectives.ȱ Entities’ responses 2.27 Eachȱofȱtheȱauditedȱentitiesȱagreedȱtoȱtheȱrecommendation.ȱ Acquisitions Introduction 2.28 Structuredȱandȱcoordinatedȱprocessesȱshouldȱbeȱinȱplaceȱtoȱfacilitateȱtheȱ regularȱidentificationȱandȱapprovalȱofȱtheȱentity’sȱassetȱacquisitionȱneeds.ȱSuchȱ processesȱassistȱinȱdeterminingȱprioritiesȱthatȱareȱconsistentȱwithȱtheȱentity’sȱ objectives,ȱ andȱ inȱ managingȱ theȱ expenditureȱ ofȱ availableȱ funds.ȱ Onceȱ acquisitionȱneedsȱareȱdetermined,ȱprogressȱagainstȱplansȱshouldȱbeȱregularlyȱ monitored,ȱincludingȱmechanismsȱtoȱdealȱwithȱanyȱreȬassessmentȱofȱpriorities.ȱ 2.29 Acquisitionȱdecisionsȱshouldȱbeȱmadeȱonȱtheȱbasisȱofȱanȱassessmentȱofȱ relevantȱ costs,ȱ togetherȱ withȱ theȱ risksȱ andȱ benefitsȱ associatedȱ withȱ theȱ proposedȱ acquisition.ȱ Whereȱ relevant,ȱ itȱ isȱ alsoȱ appropriateȱ toȱ considerȱ alternativesȱ toȱ assetȱ ownershipȱ including,ȱ amongstȱ otherȱ things,ȱ leasing,ȱ increasingȱ theȱ utilisationȱ ofȱ existingȱ assets,ȱ contractingȬoutȱ functionsȱ toȱ anȱ externalȱproviderȱ(therebyȱreducingȱtheȱrequirementȱtoȱownȱorȱutiliseȱassets),ȱ andȱmanagingȱaȱreductionȱinȱtheȱdemandȱforȱassets.ȱ Acquisition planning 2.30 Theȱ ANAOȱ assessedȱ theȱ extentȱ andȱ natureȱ ofȱ planningȱ forȱ assetȱ acquisitions.ȱ ȱ Theȱ auditȱ alsoȱ assessedȱ whetherȱ acquisitionȱ plansȱ wereȱ beingȱ monitored,ȱandȱreȬassessed,ȱinȱlightȱofȱactualȱacquisitionȱactivity.ȱȱ
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 36 Audit findings 2.31 TheȱauditȱfoundȱthatȱeachȱofȱtheȱentitiesȱhadȱformalȱandȱcoȬordinatedȱ planningȱ processesȱ inȱ placeȱ toȱ identify,ȱ assessȱ andȱ approveȱ theirȱ assetȱ acquisitionȱ needs.ȱ Amongstȱ theȱ auditedȱ entities,ȱ informationȱ aboutȱ assetȱ acquisitionȱneedsȱwasȱobtainedȱfromȱaȱvarietyȱofȱsources,ȱincluding:ȱ x anȱanalyseȱofȱtheȱconditionȱandȱutilityȱofȱIPEȱassets,ȱparticularly,ȱthoseȱ reachingȱtheȱendȱofȱtheirȱlifeȬcycle;ȱ x prioritiesȱidentifiedȱinȱotherȱplanningȱdocumentsȱorȱbyȱprojectȬspecificȱ groups,ȱforȱexample,ȱsteeringȱcommittees;ȱ x anȱassessmentȱofȱtheȱimpactȱofȱchangesȱinȱtechnology;ȱandȱ x anȱ assessmentȱ ofȱ IPEȱ assetsȱ incurringȱ maintenanceȱ costsȱ aboveȱ acceptableȱlevels.ȱ 2.32 Inȱeachȱofȱtheȱauditedȱentitiesȱtheȱpreparationȱofȱassetȱacquisitionȱplansȱ occurredȱ inȱ theȱ contextȱ ofȱ theȱ entity’sȱ broaderȱ strategiesȱ andȱ priorities,ȱ includingȱthoseȱimpactingȱonȱtheȱdemandȱforȱassets.ȱȱInȱaddition,ȱeachȱofȱtheȱ auditedȱ entitiesȱ alsoȱ hadȱ wellȬdefinedȱ arrangementsȱ supportingȱ theȱ monitoringȱandȱreportingȱofȱprogressȱagainstȱapprovedȱacquisitionȱplans.ȱȱForȱ theȱmostȱpart,ȱmonitoringȱreliedȱonȱtheȱprovisionȱofȱreportsȱfromȱtheȱcentralȱ financeȱareaȱ(orȱequivalent).ȱ 2.33 Tableȱ 2.2ȱ outlinesȱ examplesȱ ofȱ theȱ soundȱ andȱ betterȱ assetȱ acquisitionȱ planningȱpracticesȱfoundȱamongstȱtheȱauditedȱentities.ȱ Table 2.2 Sound and better asset acquisition planning practices Description Preparation of asset acquisition plans and budgets was co-ordinated through a designated officer or specialist section. Detailed guidelines, including standardised templates, were provided to line areas to explain the capital expenditure process, including the identification of funding parameters, and to assist with the submission of bids in the correct format. Formalised and well-defined processes for reviewing and, where necessary, prioritising asset acquisition bids. Unique fields were created in the FMIS to facilitate the tracking of asset purchases and the monitoring of capital expenditure by operational areas. Source: ANAO, based on the results of the audit.
Audit findings – Management of Infrastructure, Plant and Equipment Assets ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 37 Acquisition activity 2.34 Theȱfirstȱstageȱofȱaȱprocurementȱprocessȱisȱtoȱdefineȱtheȱrequirement.ȱ Theȱ extentȱ toȱ whichȱ requirementsȱ areȱ definedȱ shouldȱ reflectȱ theȱ natureȱ andȱ significanceȱofȱtheȱproposedȱpurchase.17ȱȱInȱrelationȱtoȱtheȱacquisitionȱofȱassets,ȱ thisȱnormallyȱinvolves,ȱatȱaȱminimum:ȱ x aȱdescriptionȱofȱtheȱasset(s)ȱtoȱbeȱacquired;ȱ x aȱstatementȱofȱtheȱreasonsȱfor,ȱorȱjustificationȱof,ȱtheȱacquisition;ȱandȱ x anȱestimateȱofȱtheȱcostȱofȱtheȱacquisition.ȱ 2.35 Inȱtheȱcaseȱofȱmoreȱcomplexȱorȱsignificantȱassetȱacquisitions,ȱincludingȱ thoseȱ thatȱ areȱ strategicallyȱ importantȱ toȱ theȱ entity,ȱ theȱ definitionȱ ofȱ requirementsȱshouldȱaddressȱaȱnumberȱofȱadditionalȱelements.ȱȱThisȱinvolvesȱ preparingȱaȱdetailedȱbusinessȱcaseȱoutlining:ȱ x theȱreasonsȱorȱjustificationȱforȱtheȱacquisition,ȱincludingȱdescribingȱhowȱ theȱacquisitionȱcontributesȱtoȱtheȱentity’sȱbusiness;ȱ x detailsȱofȱnonȬassetȱsolutions,ȱforȱexample,ȱhiringȱorȱleasingȱtheȱitem,ȱorȱ usingȱorȱextendingȱexistingȱresources;ȱ x theȱrelevantȱcostsȱacrossȱtheȱasset’sȱlifeȬcycle;ȱ x details,ȱandȱimplicationsȱofȱtimeframes;ȱandȱ x theȱrisksȱinvolvedȱinȱtheȱacquisition,ȱandȱhowȱtheyȱmightȱbeȱaddressed.ȱ 2.36 Theȱ ANAOȱ examinedȱ aȱ selectionȱ ofȱ assetȱ acquisitionsȱ toȱ identifyȱ ifȱ transactionsȱ wereȱ supportedȱ byȱ sufficientȱ documentation,ȱ includingȱ anȱ explanationȱofȱtheȱreasonsȱforȱtheȱacquisition,ȱanȱevaluationȱofȱalternativesȱtoȱ theȱacquisitionȱofȱnewȱassets,ȱanȱassessmentȱofȱcosts,ȱandȱevidenceȱofȱapproval.ȱ TheȱANAOȱalsoȱassessedȱwhetherȱeachȱacquisitionȱwasȱrecordedȱinȱtheȱassetȱ registerȱinȱaȱtimelyȱmanner.ȱ Audit findings 2.37 Allȱ ofȱ theȱ assetȱ acquisitionsȱ reviewedȱ wereȱ foundȱ toȱ beȱ properlyȱ approvedȱandȱrecordedȱinȱtheȱassetȱregisterȱinȱaȱtimelyȱmanner.ȱȱForȱmostȱofȱ theȱ assetȱ acquisitionsȱ evaluated,ȱ evidenceȱ existedȱ toȱ supportȱ orȱ justifyȱ theȱ decisionsȱmade.ȱȱHowever,ȱinȱtwoȱofȱtheȱauditedȱentities,ȱtheȱANAOȱfoundȱaȱ lackȱofȱconsistencyȱinȱtheȱlevelȱandȱnatureȱofȱdocumentationȱsupportingȱassetȱ acquisitions.ȱ 17 ANAO Audit Report No.57, 2004–05, Purchasing Procedures and Practices, pp. 32–33.
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 38 2.38 Aȱ betterȱ practiceȱ identifiedȱ atȱ twoȱ ofȱ theȱ auditedȱ entitiesȱ wasȱ theȱ developmentȱ ofȱ standardȱ formsȱ forȱ documentingȱ assetȱ acquisitionȱ decisions.ȱȱ Inȱoneȱofȱtheseȱentities,ȱclearȱandȱwellȬdefinedȱthresholdsȱwereȱestablishedȱtoȱ assistȱ staffȱ determineȱ theȱ relevantȱ categoryȱ ofȱ acquisition.ȱ ȱ Theȱ ANAOȱ considersȱ thatȱ theȱ useȱ ofȱ standardȱ formsȱ wasȱ effectiveȱ inȱ supportingȱ theȱ developmentȱ ofȱ assetȱ acquisitionȱ requirements,ȱ andȱ inȱ achievingȱ reliable,ȱ transparentȱandȱmoreȱconsistentȱdecisionȬmaking.ȱ 2.39 Forȱeachȱofȱtheȱassetȱacquisitionȱtransactionsȱreviewed,ȱtheȱauditȱfoundȱ thatȱ anȱ analysisȱ ofȱ costsȱ wasȱ undertaken.ȱ ȱ Generally,ȱ lowȬvalueȱ orȱ simpleȱ acquisitionsȱfocussedȱonȱtheȱamountȱofȱtheȱinitialȱoutlay.ȱȱTheȱmoreȱsignificantȱ orȱcomplexȱacquisitionsȱincorporatedȱmoreȱdetailedȱanalysisȱofȱcostsȱacrossȱtheȱ assetȱlifeȬcycle.ȱȱThisȱgenerallyȱincluded:ȱȱ x acquisitionȱ costsȱ –ȱ theȱ initialȱ capitalȱ outlay,ȱ includingȱ anyȱ commissioning,ȱinstallationȱandȱdeliveryȱcosts;ȱandȱ x operationalȱ costsȱ –ȱ costsȱ incurredȱ inȱ theȱ useȱ orȱ operationȱ ofȱ theȱ equipment,ȱ includingȱ theȱ annualȱ depreciationȱ charge,ȱ insurance,ȱ energy,ȱcleaning,ȱscheduledȱmaintenance,ȱrepairsȱandȱspareȱparts.ȱȱ 2.40 Noneȱofȱtheȱentitiesȱincludedȱestimatesȱofȱtheȱproceedsȱfromȱtheȱasset’sȱ eventualȱdisposal,ȱorȱofȱdisposalȱcosts,ȱsuchȱasȱtheȱcostȱofȱtheȱdestructionȱofȱtheȱ item,ȱtheȱremovalȱofȱsensitiveȱorȱclassifiedȱinformation,ȱadvertisingȱandȱstorageȱ costs,ȱinȱtheirȱanalysisȱofȱcosts.ȱȱDisposalȱcostsȱandȱproceedsȱareȱgenerallyȱtheȱ moreȱ difficultȱ amountsȱ toȱ accuratelyȱ estimate,ȱ particularly,ȱ forȱ assetsȱ withȱ longerȱ usefulȱ lives.ȱ ȱ Suchȱ amountsȱ areȱ unlikely,ȱ inȱ manyȱ cases,ȱ toȱ beȱ aȱ significantȱpartȱofȱtheȱtotalȱlifeȬcycleȱcostȱofȱanȱasset,ȱandȱtheirȱomissionȱwasȱ consideredȱunlikelyȱtoȱsignificantlyȱaffectȱtheȱacquisitionȱdecisionsȱreviewed.ȱȱ Nevertheless,ȱanȱestimateȱofȱdisposalȱproceedsȱandȱcostsȱshouldȱbeȱincludedȱinȱ theȱ analysisȱ ofȱ lifeȬcycleȱ costs,ȱ particularlyȱ inȱ thoseȱ casesȱ whereȱ theyȱ areȱ expectedȱtoȱbeȱsignificant,ȱandȱtheyȱcanȱbeȱestimatedȱwithȱaȱreasonableȱdegreeȱ ofȱaccuracy.ȱ Recommendation No.3 2.41 TheȱANAOȱrecommendsȱthatȱentitiesȱadopt,ȱandȱperiodicallyȱreȬassess,ȱ thresholdsȱandȱassociatedȱminimumȱdocumentaryȱrequirementsȱforȱuseȱinȱtheȱ acquisitionȱofȱIPEȱassets.ȱ Entities’ responses 2.42 Eachȱofȱtheȱauditedȱentitiesȱagreedȱwithȱtheȱrecommendation.ȱ
Audit findings – Management of Infrastructure, Plant and Equipment Assets ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 39 Operations Introduction 2.43 Theȱactiveȱmanagementȱofȱtheȱoperationȱofȱassetsȱplaysȱaȱkeyȱroleȱinȱ managingȱtheȱcostsȱandȱrisksȱofȱassetȱownershipȱandȱusage.ȱBeingȱinformedȱ aboutȱ theȱ performanceȱ ofȱ assetsȱ isȱ criticalȱ inȱ assessingȱ theirȱ contributionȱ toȱ supportingȱ businessȱ requirements.ȱ Inȱ particular,ȱ theȱ adoptionȱ ofȱ formalȱ operationalȱ planningȱ andȱ managementȱ processesȱ forȱ assetsȱ canȱ provideȱ theȱ followingȱbenefits:ȱȱ x enhancedȱcapacityȱtoȱmanageȱorȱreduceȱassetȱfailures;ȱ x betterȱ managementȱ ofȱ safetyȱ issuesȱ andȱ reductionsȱ inȱ disruptionsȱ toȱ business;ȱ x greaterȱcontrolȱover,ȱandȱabilityȱtoȱreduce,ȱtheȱrisksȱandȱcostsȱassociatedȱ withȱoperatingȱandȱusingȱassets,ȱincludingȱmaintenanceȱcosts;ȱ x improved,ȱandȱmoreȱtimely,ȱinformationȱforȱdecisionȬmaking;ȱandȱ x extendingȱ theȱ useful lifeȱ ofȱ assets,ȱ leadingȱ toȱ moreȱ controlȱ overȱ theȱ needȱfor,ȱandȱtimingȱof,ȱassetȱreplacements.ȱ 2.44 Theȱkeyȱelementsȱinȱmanagingȱtheȱoperationȱofȱassetsȱreviewedȱduringȱ theȱauditȱwere:ȱ x theȱ existenceȱ ofȱ processesȱ forȱ maintainingȱ assetsȱ inȱ goodȱ workingȱ order,ȱ includingȱ theȱ appropriateȱ mixȱ ofȱ preventativeȱ andȱ correctiveȱ maintenanceȱactivity;ȱȱ x whetherȱ operatingȱ standardsȱ orȱ indicators,ȱ settingȱ outȱ theȱ levelȱ ofȱ performanceȱ requiredȱ ofȱ assets,ȱ orȱ groupsȱ ofȱ assetsȱ hadȱ beenȱ establishedȱandȱwereȱregularlyȱmonitored;ȱandȱ x theȱ reportingȱ arrangementsȱ usedȱ toȱ informȱ managersȱ aboutȱ theȱ operationȱofȱassets.ȱ Operations and maintenance arrangements 2.45 DependingȱonȱtheȱsizeȱandȱnatureȱofȱitsȱIPEȱassetȱholdings,ȱeachȱentityȱ shouldȱstriveȱtoȱmaintainȱanȱinformedȱbalanceȱbetweenȱtheȱlevelȱofȱplannedȱ maintenanceȱ activityȱ andȱ theȱ amountȱ ofȱ reactiveȱ orȱ correctiveȱ activity.ȱȱ Generally,ȱ theȱ moreȱ significantȱ theȱ levelȱ ofȱ assetsȱ andȱ theirȱ criticalityȱ inȱ meetingȱ businessȱ objectives,ȱ theȱ greaterȱ amountȱ ofȱ plannedȱ maintenanceȱ activityȱshouldȱbeȱscheduled.ȱ
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 40 2.46 Inȱ determiningȱ theȱ mostȱ costȬeffectiveȱ strategyȱ forȱ maintainingȱ IPEȱ assetsȱinȱgoodȱworkingȱorder,ȱeachȱentityȱshouldȱconsiderȱfactorsȱsuchȱasȱthe:ȱ x natureȱandȱtheȱrolesȱofȱitsȱassets;ȱ x likelihood,ȱ andȱ consequences,ȱ ofȱ breakdownsȱ orȱ nonȬperformanceȱ ofȱ assets,ȱincludingȱtheȱimpactsȱofȱdisruptionȱtoȱbusiness;ȱandȱ x availabilityȱ ofȱ sufficientȱ resources,ȱ includingȱ fundingȱ andȱ qualifiedȱ staff.ȱ Audit findings 2.47 Theȱ auditȱ assessedȱ thatȱ threeȱ ofȱ theȱ auditedȱ entitiesȱ hadȱ soundȱ arrangementsȱ forȱ maintainingȱ theirȱ IPEȱ assetsȱ inȱ goodȱ workingȱ order.ȱ Theȱ rangeȱofȱprocessesȱincluded:ȱ x formalȱ maintenanceȱ arrangementsȱ wereȱ inȱ placeȱ forȱ higherȱ valueȱ orȱ essentialȱitemsȱofȱofficeȱequipmentȱassets,ȱsuchȱasȱfacsimileȱmachines,ȱ photocopiersȱandȱmultiȬfunctionȱdevices;ȱ x maintenanceȱ requirements,ȱ includingȱ schedulesȱ ofȱ programmedȱ maintenanceȱwereȱclearlyȱsetȱoutȱinȱleaseȱagreements;ȱȱ x inȬhouseȱ maintenanceȱ schedulesȱ wereȱ basedȱ onȱ manufacturer’sȱ recommendationsȱandȱrecentȱoperationalȱexperience;ȱ x aȱ databaseȱ wasȱ usedȱ toȱ manageȱ correctiveȱ maintenanceȱ activities,ȱ includingȱaȱrecordȱofȱreportedȱfaults,ȱdetailsȱofȱworkȱundertaken,ȱandȱ informationȱonȱtimeȱspentȱonȱmaintenanceȱactivities;ȱȱ x detailedȱschedulesȱofȱpreventativeȱmaintenanceȱactivityȱwereȱinȱplace;ȱ andȱȱ x aȱprogramȱwasȱundertakenȱtoȱupgradeȱorȱrefurbishȱassetsȱandȱrelatedȱ servicesȱ toȱ ensureȱ complianceȱ withȱ documentedȱ maintenanceȱ standards.ȱ 2.48 Inȱ addition,ȱ whereȱ significantȱ elementsȱ ofȱ maintenanceȱ activityȱ wereȱ deliveredȱunderȱcontract,ȱtheȱANAOȱfoundȱthereȱwasȱsufficientȱclarityȱaboutȱ theȱ servicesȱ toȱ beȱ delivered,ȱ andȱ thatȱ theȱ auditedȱ entitiesȱ wereȱ effectivelyȱ managingȱtheseȱarrangements.ȱȱEachȱentityȱhadȱaȱrangeȱofȱstructuredȱprocessesȱ toȱ manageȱ theȱ deliveryȱ ofȱ services,ȱ includingȱ processesȱ toȱ monitorȱ andȱ measureȱtheȱperformanceȱofȱtheȱcontractedȱserviceȱprovider.ȱAmongȱtheȱbetterȱ contractȱmanagementȱpracticesȱreviewedȱduringȱtheȱauditȱwere:ȱ
Audit findings – Management of Infrastructure, Plant and Equipment Assets ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 41 x regularȱmeetingsȱbeingȱheldȱwithȱtheȱcontractedȱserviceȱprovidersȱtoȱ discussȱ issuesȱ arisingȱ fromȱ theȱ work,ȱ includingȱ performanceȱ againstȱ performanceȱindicators;ȱ x theȱ provisionȱ (andȱ review)ȱ ofȱ regularȱ reportsȱ detailingȱ theȱ workȱ undertaken;ȱandȱ x theȱ conductȱ ofȱ periodicȱ inspectionsȱ ofȱ theȱ contractor’sȱ systemsȱ andȱ procedures.ȱ Performance information 2.49 Accessȱ toȱ reliableȱ andȱ accurateȱ performanceȱ informationȱ isȱ aȱ keyȱ elementȱ inȱ theȱ effectiveȱ managementȱ ofȱ businessȱ objectives.ȱ ȱ Asȱ wellȱ asȱ providingȱ anȱ informedȱ basisȱ forȱ decisionȬmaking,ȱ theȱ timelyȱ reviewȱ ofȱ performanceȱinformationȱcanȱalsoȱhighlightȱtheȱneedȱforȱpreventativeȱaction.ȱȱȱ 2.50 Entitiesȱshouldȱconsiderȱtheȱuseȱofȱperformanceȱmeasuresȱorȱindicatorsȱ forȱ thoseȱ assetsȱ thatȱ areȱ criticalȱ toȱ meetingȱ theirȱ businessȱ objectivesȱ orȱ requirements.ȱTheȱuseȱofȱperformanceȱindicatorsȱcanȱassistȱinȱthe:ȱȱ x assessmentȱ ofȱ whetherȱ assetsȱ areȱ effectivelyȱ supportingȱ businessȱ requirements;ȱ x evaluationȱ ofȱ theȱ costȬeffectivenessȱ ofȱ operationalȱ andȱ maintenanceȱ strategies;ȱandȱ x measurementȱofȱwhetherȱactualȱcostsȱaccordȱwithȱestimatedȱcostsȱoverȱ theȱassetȱlifeȬcycle.ȱ 2.51 Potentialȱ assetȱ performanceȱ indicatorsȱ includeȱ measuresȱ associatedȱ with:ȱȱ x physicalȱ condition:ȱ assetsȱ maintainedȱ inȱ goodȱ conditionȱ andȱ doȱ notȱ detractȱfromȱaȱsafeȱandȱhealthyȱworkȱenvironment;ȱ x functionality:ȱuserȱsatisfactionȱandȱlevelȱofȱavailability;ȱ x utilisation:ȱinformationȱonȱactualȱusageȱofȱassets,ȱforȱexampleȱhoursȱofȱ operations;ȱandȱȱ x financialȱperformance:ȱcostȱofȱoperatingȱandȱmaintainingȱassets.ȱ 2.52 Eachȱ entityȱ shouldȱ assessȱ theȱ extentȱ toȱ whichȱ formalȱ performanceȱ measurementȱ isȱ likelyȱ toȱ beȱ warrantedȱ inȱ relationȱ toȱ itsȱ IPEȱ assets.ȱ ȱ Inȱ thisȱ regard,ȱ theȱ useȱ ofȱ standardsȱ orȱ performanceȱ indicatorsȱ isȱ generallyȱ moreȱ
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 42 appropriateȱinȱthoseȱcircumstancesȱwhereȱIPEȱassetsȱareȱsignificantȱorȱcriticalȱ toȱmeetingȱtheȱentity’sȱbusinessȱobjectives.ȱȱȱ Audit findings 2.53 Noneȱofȱtheȱauditedȱentitiesȱhadȱstructuredȱandȱcoordinatedȱprocessesȱ forȱmonitoringȱtheȱperformanceȱofȱIPEȱassetsȱonȱanȱentityȬwideȱbasis.ȱInȱthreeȱ entities,ȱ individualȱ operationalȱ areasȱ regularlyȱ assessedȱ theȱ performanceȱ ofȱ selectedȱassetsȱagainstȱpredefinedȱstandards.ȱȱInȱeachȱcase,ȱtheseȱassessmentsȱ wereȱ limitedȱ toȱ aȱ specificȱ groupȱ orȱ classȱ ofȱ assets,ȱ andȱ theȱ informationȱ wasȱ obtainedȱfrom,ȱorȱmaintainedȱon,ȱaȱvarietyȱofȱstandȬaloneȱsourcesȱwithinȱtheȱ respectiveȱareas.ȱTheȱassessmentsȱundertakenȱatȱtheseȱentitiesȱincluded:ȱȱ x whetherȱ assetsȱ wereȱ maintainedȱ inȱ aȱ safe,ȱ useableȱ andȱ hygienicȱ condition;ȱ x whetherȱ maintenanceȱ activitiesȱ wereȱ compliantȱ withȱ relevantȱ legislativeȱrequirements;ȱ x levelsȱofȱcomplianceȱwithȱmaintenanceȱstandards;ȱ x theȱcontinuedȱavailabilityȱandȱfunctionalityȱorȱequipment;ȱandȱȱ x anȱassessmentȱofȱtheȱextentȱtoȱwhichȱequipmentȱwasȱutilised.ȱ 2.54 Noneȱofȱtheȱauditedȱentitiesȱemployedȱstandardsȱorȱindicatorsȱcoveringȱ eachȱofȱtheȱdimensionsȱmentionedȱatȱparagraphȱ2.51.ȱȱForȱexample,ȱnoneȱofȱtheȱ entitiesȱ hadȱ developed,ȱ atȱ theȱ timeȱ ofȱ theȱ audit,ȱ standardsȱ addressingȱ theȱ financialȱperformanceȱofȱtheirȱIPEȱassets.ȱAccessȱtoȱinformationȱsuchȱasȱwhetherȱ theȱcostȱofȱrepairsȱandȱmaintenanceȱand/orȱtheȱcostȱofȱoperatingȱanȱassetȱareȱ consistentȱwithȱnormalȱorȱacceptableȱstandardsȱcanȱbeȱanȱimportantȱelementȱinȱ managingȱ theȱ performanceȱ ofȱ assets,ȱ particularlyȱ thoseȱ thatȱ areȱ criticalȱ toȱ meetingȱbusinessȱobjectives.ȱȱSuchȱinformationȱcanȱalsoȱbeȱimportantȱinȱassetȱ acquisitionȱandȱdisposalȱdecisions.ȱ 2.55 Onȱ theirȱ own,ȱ neitherȱ financialȱ norȱ nonȬfinancialȱ performanceȱ informationȱ isȱ generallyȱ sufficientȱ toȱ supportȱ managersȱ meetingȱ theirȱ assetȱ managementȱresponsibilities.ȱȱInȱparticular,ȱundueȱrelianceȱonȱdifferentȱtypesȱ ofȱ performanceȱ informationȱ canȱ adverselyȱ affectȱ decisionȬmaking.ȱ Accordingly,ȱperformanceȱinformationȱshouldȱcompriseȱanȱappropriateȱmixȱofȱ bothȱfinancialȱandȱnonȬfinancialȱmeasures.ȱȱȱ 2.56 Oneȱentityȱincluded,ȱinȱitsȱPortfolioȱBudgetȱStatementsȱ(PBS),ȱaȱnumberȱ ofȱ indicatorsȱ relatingȱ toȱ theȱ performanceȱ ofȱ selectedȱ IPEȱ assets.ȱ ȱ Theseȱ indicatorsȱincludedȱmeasuresȱrelatingȱtoȱtheȱavailabilityȱofȱthisȱequipmentȱandȱ
Audit findings – Management of Infrastructure, Plant and Equipment Assets ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 43 alsoȱ achievementsȱ againstȱ assetȱ replacementȱ programs.ȱ ȱ Theȱ ANAOȱ consideredȱthatȱtheȱinclusionȱofȱtheseȱperformanceȱindicatorsȱinȱtheȱPBS,ȱandȱ theȱregularȱmonitoringȱofȱperformanceȱagainstȱthem,ȱwasȱanȱeffectiveȱmeansȱofȱ achievingȱanȱincreasedȱfocusȱonȱtheȱmanagementȱofȱtheseȱassets.ȱȱTheȱANAOȱ considersȱ thisȱ approachȱ toȱ beȱ anȱ exampleȱ ofȱ betterȱ practiceȱ because,ȱ inȱ thisȱ instance,ȱtheȱoperationȱofȱtheseȱassetsȱcontributedȱdirectlyȱandȱsignificantlyȱtoȱ theȱachievementȱofȱtheȱentity’sȱoutputs.ȱȱȱ Management reporting 2.57 Managementȱ reportingȱ shouldȱ provideȱ aȱ levelȱ ofȱ informationȱ thatȱ assistsȱ managersȱ planȱ for,ȱ evaluateȱ andȱ controlȱ theȱ assetsȱ theyȱ utilise.ȱ Inȱ particular,ȱ entitiesȱ shouldȱ haveȱ arrangementsȱ forȱ capturingȱ andȱ reportingȱ informationȱ onȱ theȱ operationȱ ofȱ theirȱ assets,ȱ orȱ onȱ theȱ performanceȱ ofȱ assetȱ managementȱprocesses.ȱ Audit findings 2.58 Inȱ eachȱ ofȱ theȱ auditedȱ entities,ȱ theȱ auditȱ foundȱ thatȱ managersȱ wereȱ regularlyȱ providedȱ withȱ financialȱ activityȱ reportsȱ toȱ assistȱ theirȱ decisionȬ makingȱaboutȱassets.ȱȱForȱtheȱmostȱpart,ȱtheseȱreportsȱfocussedȱonȱdetailsȱofȱ actualȱ capitalȱ expenditure,ȱ includingȱ aȱ comparisonȱ toȱ plannedȱ orȱ budgetedȱ amounts.ȱInȱeachȱcase,ȱtheseȱreportsȱwereȱproducedȱcentrallyȱbyȱtheȱcorporateȱ financeȱareaȱandȱsourcedȱfromȱtheȱentity’sȱFMIS.ȱȱ 2.59 Threeȱ ofȱ theȱ entitiesȱ hadȱ arrangementsȱ inȱ placeȱ forȱ reportingȱ nonȬ financialȱinformationȱrelatingȱtoȱtheȱoperationȱofȱIPEȱassets.ȱȱAsȱwasȱtheȱcaseȱ withȱ theȱ useȱ ofȱ performanceȱ standards,ȱ thisȱ nonȬfinancialȱ informationȱ wasȱ sourcedȱ andȱ managedȱ withinȱ individualȱ operationalȱ areasȱ andȱ relatedȱ toȱ specificȱ groupsȱ orȱ classesȱ ofȱ assets.ȱ ȱ Theȱ assessmentȱ ofȱ performanceȱ againstȱ preȬdeterminedȱ standardsȱ comprisedȱ aȱ keyȱ part,ȱ butȱ notȱ all,ȱ ofȱ theȱ nonȬ financialȱ informationȱ usedȱ inȱ theȱ managementȱ ofȱ IPEȱ assets.ȱ Amongstȱ theȱ auditedȱentities,ȱtheȱauditȱidentifiedȱtheȱuseȱofȱinformationȱrelatingȱto:ȱ x performanceȱagainstȱspecifiedȱstandards,ȱincludingȱtheȱavailabilityȱandȱ functionalityȱofȱequipment;ȱ x detailsȱandȱanalysisȱonȱtheȱnumberȱof,ȱandȱtheȱtimeȱspentȱon,ȱrepairȱandȱ maintenanceȱjobs;ȱ x analysisȱofȱserviceȱfaultsȱandȱserviceȱrequests;ȱ x resultsȱagainstȱplannedȱmaintenanceȱactivities;ȱȱ
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 44 x anȱanalysisȱofȱrepairȱactivity,ȱincludingȱanȱassessmentȱofȱtheȱcausesȱofȱ repairsȱandȱanȱanalysisȱofȱtheȱnumberȱandȱpriorityȱofȱworkȱorders;ȱandȱȱ x equipmentȱusageȱdata.ȱ 2.60 Overall,ȱtheȱauditȱconsideredȱthatȱtheȱlevelȱofȱinformationȱprovidedȱtoȱ managers,ȱ togetherȱ withȱ theȱ informationȱ containedȱ inȱ eachȱ entity’sȱ assetȱ register18ȱ was,ȱ forȱ theȱ mostȱ part,ȱ adequateȱ toȱ supportȱ assetȱ managementȱ decisionȬmaking.ȱȱTheȱANAOȱconsidersȱthatȱassetȱdecisionȬmakingȱwouldȱbeȱ enhancedȱ byȱ alsoȱ collectingȱ andȱ reviewingȱ informationȱ addressingȱ theȱ financialȱperformanceȱofȱassets,ȱforȱexample,ȱinformationȱonȱtheȱcostsȱofȱrepairȱ andȱmaintenanceȱactivities.ȱ Recommendation No.4 2.61 Theȱ ANAOȱ recommends,ȱ forȱ thoseȱ IPEȱ assetsȱ thatȱ areȱ criticalȱ toȱ meetingȱtheirȱbusinessȱobjectives,ȱthatȱentities:ȱ x developȱappropriateȱperformanceȱindicators,ȱaddressingȱbothȱfinancialȱ andȱ nonȬfinancialȱ factors,ȱ toȱ measureȱ theȱ efficientȱ andȱ effectiveȱ operationȱofȱthoseȱassets;ȱandȱ x regularlyȱ capture,ȱ monitorȱ andȱ reportȱ toȱ relevantȱ managers,ȱ informationȱonȱachievementsȱagainstȱthoseȱindicators.ȱ Entities’ responses 2.62 Eachȱ ofȱ theȱ auditedȱ entitiesȱ agreedȱ withȱ theȱ recommendation.ȱȱȱ Austradeȱprovidedȱtheȱfollowingȱspecificȱcomment:ȱ Inȱadditionȱtoȱtheȱregularȱmonitoringȱofȱtheȱperformanceȱofȱbusinessȱcriticalȱ assets,ȱ Austradeȱ considersȱ thatȱ appropriateȱ redundancyȱ orȱ backȬupȱ arrangementsȱshouldȱbeȱinȱplaceȱforȱtheseȱassets.ȱȱForȱlessȱsignificantȱassets,ȱ Austradeȱ agreesȱ thatȱ thereȱ shouldȱ beȱ anȱ informedȱ balanceȱ betweenȱ formalȱ monitoringȱmechanismsȱandȱreactiveȱorȱcorrectiveȱactivities.ȱ Disposals Introduction 2.63 Toȱ assistȱ inȱ theȱ identificationȱ ofȱ opportunitiesȱ toȱ betterȱ supportȱ theȱ conductȱofȱbusiness,ȱentitiesȱshouldȱhaveȱstructuredȱprocessesȱforȱidentifyingȱ assetsȱ thatȱ areȱ underȬperforming,ȱ areȱ inefficientȱ toȱ operateȱ orȱ areȱ surplusȱ toȱ 18 As discussed at paragraphs 2.11 to 2.15.
Audit findings – Management of Infrastructure, Plant and Equipment Assets ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 45 requirements.ȱ ȱ Identifyingȱ andȱ dealingȱ withȱ theseȱ assetsȱ inȱ aȱ timelyȱ andȱ consideredȱmanner,ȱalsoȱincreasesȱtheȱlikelihoodȱofȱmaximisingȱtheȱproceedsȱ fromȱ disposalȱ activity.ȱ ȱ Onceȱ potentialȱ disposalsȱ haveȱ beenȱ identified,ȱ sufficientȱ justificationȱ shouldȱ beȱ providedȱ toȱ enableȱ disposalȱ transactionsȱ toȱ withstandȱscrutiny,ȱparticularlyȱifȱtheȱdisposalȱinvolvesȱsignificantȱassets.ȱ Disposal planning 2.64 Relevantȱconsiderationsȱinȱtheȱidentificationȱofȱsurplusȱassetsȱincludeȱ theȱfollowing:ȱ x assetsȱmayȱnoȱlongerȱsupportȱtheȱentity’sȱobjectivesȱdueȱtoȱchangesȱinȱ theȱentity’sȱbusiness,ȱincludingȱtheȱtypeȱofȱservicesȱprovided;ȱ x assetsȱhaveȱvaryingȱusefulȱlives;ȱȱ x assetsȱ mayȱ beȱ ableȱ toȱ performȱ asȱ originallyȱ planned,ȱ butȱ haveȱ beenȱ madeȱ redundantȱ orȱ lessȱ effectiveȱ dueȱ toȱ advancesȱ inȱ technologyȱ orȱ changedȱworkȱpractices;ȱandȱ x potentialȱ savingsȱ fromȱ theȱ replacementȱ ofȱ anȱ assetȱ mustȱ beȱ weighedȱ againstȱtheȱcostȱofȱthatȱreplacement.ȱ Audit findings 2.65 Noneȱ ofȱ theȱ auditedȱ entitiesȱ hadȱ regularȱ orȱ structuredȱ planningȱ processesȱspecificallyȱdealingȱwithȱassetȱdisposals.ȱȱRather,ȱtheyȱtendedȱtoȱrelyȱ onȱ aȱ rangeȱ ofȱ adȬhocȱ andȱ lessȱ formalȱ processesȱ toȱ identifyȱ potentialȱ assetȱ disposals.ȱȱTheseȱprocessesȱincluded,ȱforȱexample,ȱobservationsȱmadeȱduringȱ routineȱ operations,ȱ observationsȱ duringȱ theȱ conductȱ andȱ fromȱ theȱ resultsȱ ofȱ stocktakes,ȱandȱinformationȱgainedȱfromȱmaintenanceȱactivities.ȱȱ 2.66 Inȱaddition,ȱpotentialȱdisposalsȱwereȱalsoȱoftenȱidentifiedȱasȱpartȱofȱtheȱ assessmentȱofȱassetȱreplacementȱrequirements.ȱȱInȱthisȱregard,ȱaȱbetterȱpracticeȱ atȱ oneȱ entityȱ wasȱ theȱ review,ȱ asȱ partȱ ofȱ preparationȱ ofȱ theirȱ annualȱ assetȱ acquisitionȱplan,ȱofȱthoseȱassetsȱapproachingȱtheȱendȱofȱtheirȱestimatedȱusefulȱ lives.ȱȱTheseȱreviewsȱwereȱdesignedȱtoȱassessȱtheȱconditionȱofȱtheȱassets,ȱandȱ theirȱabilityȱtoȱcontinueȱtoȱprovideȱanȱappropriateȱlevelȱofȱusefulȱservice.ȱ 2.67 Theȱ monitoringȱ ofȱ assetsȱ thatȱ areȱ at,ȱ orȱ areȱ nearingȱ theȱ endȱ ofȱ theirȱ usefulȱ life,ȱ isȱ aȱ usefulȱ practiceȱ toȱ facilitateȱ theȱ identificationȱ ofȱ potentialȱ disposalsȱinȱaȱtimelyȱmanner.ȱ19ȱȱTheȱwellȬtimedȱdisposalȱofȱanȱassetȱcanȱreduceȱ theȱcostsȱofȱholdingȱolderȱassetsȱandȱalsoȱmaximiseȱdisposalȱproceeds.ȱȱ 19 ANAO Audit Report No.8, 2001–02, Disposal of Infrastructure, Plant and Equipment, p. 51.
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 46 Disposal activity 2.68 Theȱauditȱassessed,ȱforȱaȱselectionȱofȱdisposalȱtransactions,ȱwhetherȱtheȱ disposalȱwasȱsupportedȱbyȱsufficientȱdocumentation,ȱincluding:ȱ x explanationȱofȱtheȱreasonsȱforȱtheȱdisposal;ȱ x identificationȱ ofȱ theȱ mostȱ appropriateȱ disposalȱ method,ȱ includingȱ considerationȱofȱissuesȱaroundȱtiming,ȱsecurityȱandȱachievingȱtheȱbestȱ return;ȱandȱ x evidenceȱofȱapproval.ȱ Audit findings 2.69 Allȱ theȱ disposalȱ transactionsȱ reviewedȱ wereȱ properlyȱ approved,ȱ however,ȱ evidenceȱ wasȱ notȱ alwaysȱ availableȱ toȱ justifyȱ theȱ disposal.ȱ ȱ Inȱ particular,ȱinȱtwoȱentitiesȱtheȱANAOȱfoundȱaȱlackȱofȱconsistencyȱinȱtheȱlevelȱofȱ documentationȱsupportingȱdisposals.ȱȱȱ 2.70 Threeȱ ofȱ theȱ auditedȱ entitiesȱ hadȱ developedȱ standardȱ formsȱ toȱ guideȱ staffȱ throughȱ theȱ disposalȱ ofȱ anȱ asset.ȱ ȱ Inȱ twoȱ ofȱ theseȱ entities,ȱ theȱ ANAOȱ assessedȱ theȱ formsȱ asȱ sufficientȱ andȱ usefulȱ toȱ supportȱ decisionȬmaking,ȱ includingȱprovidingȱjustificationsȱorȱexplanationsȱforȱtheȱdisposalȱtransaction.ȱ Theȱ ANAOȱ considersȱ thatȱ theȱ existenceȱ ofȱ theseȱ standardȱ forms,ȱ andȱ associatedȱ guidelines,ȱ contributedȱ toȱ moreȱ consistencyȱ inȱ disposalȱ decisionȬ making.ȱ 2.71 Inȱ threeȱ ofȱ theȱ auditedȱ entitiesȱ alternativesȱ toȱ theȱ disposalȱ ofȱ assetsȱ wereȱ activelyȱ consideredȱ duringȱ theȱ decisionȬmakingȱ process,ȱ including,ȱ transferringȱ assetsȱ toȱ differentȱ areasȱ ofȱ theȱ entity,ȱ adaptingȱ assetsȱ toȱ meetȱ anotherȱfunction,ȱorȱretainingȱsurplusȱequipmentȱasȱbackȬupȱequipmentȱorȱforȱ spareȱparts.ȱ 2.72 Aȱbetterȱpracticeȱidentifiedȱatȱoneȱentityȱwasȱtheȱrequirementȱforȱstaffȱ members,ȱpriorȱtoȱdisposingȱofȱanȱasset,ȱtoȱmakeȱanȱassessmentȱofȱwhetherȱtheȱ assetȱcouldȱbeȱusedȱbyȱanotherȱareaȱofȱtheȱentity.ȱInȱtheseȱcases,ȱtheȱavailabilityȱ ofȱ theȱ equipmentȱ wasȱ notifiedȱ toȱ otherȱ areasȱ ofȱ theȱ entityȱ viaȱ anȱ electronicȱ bulletinȱboard.ȱȱȱȱ
Audit findings – Management of Infrastructure, Plant and Equipment Assets ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 47 Recommendation No.5 2.73 ToȱassistȱinȱtheȱidentificationȱofȱIPEȱassetsȱthatȱmayȱrequireȱdisposal,ȱ theȱANAOȱrecommendsȱthatȱentitiesȱregularlyȱmonitorȱthoseȱassetsȱnearingȱtheȱ endȱofȱtheirȱestimatedȱusefulȱlives.20ȱ Entities’ responses 2.74 Eachȱofȱtheȱauditedȱentitiesȱagreedȱwithȱtheȱrecommendation.ȱ Ian McPhee Canberra ACT Auditor-General 3 May 2006 ȱ . 20 A similar recommendation was made in ANAO Audit Report No.8, 2001–02.
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 48
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 49 Appendices
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 50
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 51 Appendix 1: Audit criteria Component Audit criteria Control environment Comprehensive, clear and readily accessible policies and procedures, covering each stage of the asset life-cycle have been developed. A formal and secure record of asset information, providing accurate, reliable and timely information on the entity’s asset holdings. Asset planning A structured process is in place to develop an asset management strategy/plan, which is integrated with the entity’s strategic or business planning processes, and aligns the entity’s asset portfolio with their business requirements. Acquisitions A structured process is in place for the identification and approval of organisation’s acquisition needs. Acquisition activity accords with acquisition plan(s), and is adequately justified, approved and recorded in the asset information management system in a timely manner. Operations Processes are in place for maintaining assets in good working order, including the appropriate mix of preventative and corrective maintenance activities. Operating standards or indicators setting out the level of performance required of assets, or groups of assets have been established and are regularly monitored. Reporting arrangements are in place to regularly inform managers about the operation of assets. Disposals A structured process is in place for the identification and approval of surplus, obsolete and under-performing assets for disposal. Disposal activity accords with disposal plan(s), and is adequately justified, approved and recorded in the asset information management system in a timely manner.
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 52 Appendix 2: Content of asset policy and procedural documentation Theȱcontentȱofȱanȱentity’sȱassetȱpolicyȱandȱproceduralȱdocumentationȱshouldȱreflectȱtheȱ volumeȱandȱnatureȱofȱitsȱassetȬbase.ȱȱHowever,ȱtheȱfollowingȱtableȱprovidesȱanȱoutlineȱ ofȱtheȱcontentȱlikelyȱtoȱbeȱrelevantȱtoȱmanyȱAustralianȱGovernmentȱentities.ȱ Phase of Asset life-cycle Section Planning Definition of asset management Role of assets Phases of the asset life-cycle Understanding life-cycle costing Accountability and roles and responsibilities Acquisitions Analysis of alternatives, including non-asset solutions Acquisition planning Life-cycle costing Purchasing, including the requirements of the Commonwealth Procurement Guidelines Receipt and acceptance of assets Establishing ownership and control Operations Establishing performance indicators Operation and maintenance planning Monitoring use and performance Preventative and corrective maintenance Tracking assets, including transfers and loans Safeguarding assets Stocktaking assets Disposals Identification of surplus, obsolete and under-performing assets Developing replacement strategies Evaluation of disposal alternatives Write-off of damaged, lost or stolen assets Accounting Definition of assets, including the criterion of control Capitalisation thresholds Portable and attractive assets Revaluations Recognition criteria Depreciation, including asset life-cycle or useful life Treatment of repairs and maintenance Recording acquisitions/disposals Source: ANAO.
ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 53 Appendix 3: Entitiesʼ comments on the proposed audit report Thisȱappendixȱcontainsȱanyȱgeneralȱcommentsȱreceivedȱonȱtheȱauditȱreportȱthatȱareȱnotȱ shownȱinȱtheȱbodyȱofȱtheȱreport.ȱȱȱ Australian Film, Television and Radio School AFTRSȱacknowledgesȱthatȱtheȱreportȱcapturesȱtheȱmanyȱpositive,ȱasȱwellȱasȱtheȱ smallȱ numberȱ ofȱ notȬsoȬpositive,ȱ pointsȱ thatȱ wereȱ identifiedȱ inȱ itsȱ auditȱ andȱ subsequentlyȱ expressedȱ inȱ theȱ managementȱ letterȱ toȱ AFTRS.ȱ ȱ AFTRSȱ canȱ confirmȱ thatȱ isȱ hasȱ alreadyȱ addressedȱ someȱ theȱ issuesȱ thatȱ wereȱ flaggedȱ asȱ needingȱ attention,ȱ andȱ willȱ resolveȱ theȱ fewȱ thatȱ remainȱ outstandingȱ inȱ anȱ expedientȱmanner.ȱ Australian Trade Commission Austradeȱagreesȱwithȱallȱtheȱreport’sȱrecommendations.ȱȱAustradeȱintendsȱtoȱ reviewȱ itsȱ policiesȱ andȱ proceduresȱ toȱ ensureȱ thatȱ allȱ recommendationsȱ areȱ incorporatedȱintoȱthemȱasȱappropriate,ȱandȱvaluesȱtheȱANAO’sȱcontributionȱinȱ thisȱregard.ȱ Department of Immigration and Multicultural Affairs TheȱDepartmentȱofȱImmigrationȱandȱMulticulturalȱAffairsȱ(DIMA)ȱwelcomedȱ theȱchanceȱtoȱparticipateȱinȱthisȱauditȱandȱappreciatedȱtheȱfeedbackȱprovidedȱ inȱourȱindividualȱmanagementȱletter.ȱȱDIMAȱagreesȱwithȱtheȱbetterȱpracticesȱ outlinedȱinȱrecommendationsȱoneȱtoȱfive,ȱandȱwillȱendeavourȱtoȱincorporateȱ theseȱpracticesȱintoȱoperationsȱandȱpolicyȱwhereȱrelevant.ȱ
ANAO_Report_2005-2006_37_management asset.pdf
ANAO_Report_2005-2006_37_management asset.pdf
ANAO_Report_2005-2006_37_management asset.pdf
ANAO_Report_2005-2006_37_management asset.pdf
ANAO_Report_2005-2006_37_management asset.pdf
ANAO_Report_2005-2006_37_management asset.pdf

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ANAO_Report_2005-2006_37_management asset.pdf

  • 1. T h e A u d i t o r - G e n e r a l Audit Report No.37 2005–06 Performance Audit The Management of Infrastructure, Plant and Equipment Assets A u s t r a l i a n N a t i o n a l A u d i t O f f i c e
  • 2. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 2 © Commonwealth of Australia 2006 ISSN 1036–7632 ISBN 0 642 80898 8 COPYRIGHT INFORMATION This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to the Commonwealth Copyright Administration, Attorney-General’s Department, Robert Garran Offices, National Circuit Canberra ACT 2600 http://www.ag.gov.au/cca
  • 3. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 3 Canberra ACT 3 May 2006 Dear Mr President Dear Mr Speaker The Australian National Audit Office has undertaken a performance audit across agencies in accordance with the authority contained in the Auditor-General Act 1997. Pursuant to Senate Standing Order 166 relating to the presentation of documents when the Senate is not sitting, I present the report of this audit and the accompanying brochure. The report is titled The Management of Infrastructure, Plant and Equipment Assets. Following its presentation and receipt, the report will be placed on the Australian National Audit Office’s Homepage—http://www.anao.gov.au. Yours sincerely Ian McPhee Auditor-General The Honourable the President of the Senate The Honourable the Speaker of the House of Representatives Parliament House Canberra ACT
  • 4. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 4 AUDITING FOR AUSTRALIA The Auditor-General is head of the Australian National Audit Office. The ANAO assists the Auditor-General to carry out his duties under the Auditor-General Act 1997 to undertake performance audits and financial statement audits of Commonwealth public sector bodies and to provide independent reports and advice for the Parliament, the Government and the community. The aim is to improve Commonwealth public sector administration and accountability. For further information contact: The Publications Manager Australian National Audit Office GPO Box 707 Canberra ACT 2601 Telephone: (02) 6203 7505 Fax: (02) 6203 7519 Email: webmaster@anao.gov.au ANAO audit reports and information about the ANAO are available at our internet address: http://www.anao.gov.au Audit Team RussellȱColemanȱȱ BillȱBonneyȱȱ HaritȱWadhawanȱȱ DavidȱMurtough
  • 5. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 5 ȱ ȱ Contents Abbreviations.................................................................................................................. 6 Glossary ......................................................................................................................... 7 Summary and Recommendations .............................................................................. 9 Summary...................................................................................................................... 11 Background............................................................................................................. 11 Audit objective and scope ....................................................................................... 11 Audited entities........................................................................................................ 11 Audit conclusion and key findings........................................................................... 12 Entities’ comments.................................................................................................. 14 Sound and better practices ..................................................................................... 14 Recommendations ....................................................................................................... 15 Audit Findings and Conclusions.............................................................................. 17 1. Introduction ............................................................................................................. 19 Background to business support process audits .................................................... 19 Context of this audit ................................................................................................ 19 Asset management ................................................................................................. 20 Factors influencing asset management in the Australian Government Sector....... 22 Asset management audits by the ANAO ................................................................ 24 Audit objective, criteria and approach..................................................................... 25 Audit coverage ........................................................................................................ 26 2. Audit findings – Management of Infrastructure, Plant and Equipment Assets........ 28 Introduction ............................................................................................................. 28 Control environment................................................................................................ 28 Asset planning......................................................................................................... 32 Acquisitions............................................................................................................. 35 Operations............................................................................................................... 39 Disposals................................................................................................................. 44 Appendices................................................................................................................. 49 Appendix 1: Audit criteria ........................................................................................ 51 Appendix 2: Content of asset policy and procedural documentation...................... 52 Appendix 3: Entities’ comments on the proposed audit report............................... 53 Index............................................................................................................................. 54 Series Titles.................................................................................................................. 55 Better Practice Guides ................................................................................................. 58
  • 6. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 6 Abbreviations ANAOȱ AustralianȱNationalȱAuditȱOfficeȱ AFTRSȱ AustralianȱFilm,ȱTelevisionȱandȱRadioȱSchoolȱ Austradeȱ AustralianȱTradeȱCommissionȱ CACȱActȱ CommonwealthȱAuthoritiesȱandȱCompaniesȱActȱ1997ȱ CEIsȱ ChiefȱExecutiveȱInstructionsȱ CPGsȱ CommonwealthȱProcurementȱGuidelinesȱ DIMAȱ DepartmentȱofȱImmigrationȱandȱMulticulturalȱAffairsȱ DPSȱ DepartmentȱofȱParliamentaryȱServicesȱ FMISȱ FinancialȱManagementȱInformationȱSystemȱ FMAȱActȱ FinancialȱManagementȱandȱAccountabilityȱActȱ1997ȱ IPEȱ Infrastructure,ȱPlantȱandȱEquipmentȱ PBSȱ PortfolioȱBudgetȱStatementsȱ ȱ ȱ ȱ ȱ ȱ ȱ ȱ ȱ
  • 7. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 7 Glossary Assetȱ Anȱassetȱprovidesȱanȱorganisationȱwithȱfutureȱserviceȱpotentialȱ orȱ economicȱ benefits.ȱ ȱ Inȱ thisȱ audit,ȱ assetsȱ wereȱ definedȱ asȱ physicalȱitemsȱofȱinfrastructure,ȱplantȱandȱequipmentȱwithȱanȱ estimatedȱlifeȬcycleȱofȱ12ȱmonthsȱorȱmore.ȱ Assetȱ managementȱ Aȱplannedȱandȱstructuredȱapproachȱtoȱcontrollingȱassetsȱoverȱ theirȱ lifeȬcycle.ȱ ȱ Itȱ encompassingȱ dealingȱ withȱ theȱ risksȱ andȱ costsȱ associatedȱ withȱ anȱ asset’sȱ acquisition,ȱ operationȱ orȱ useȱ andȱ disposal.ȱ ȱ Assetȱ managementȱ isȱ oftenȱ underpinnedȱ byȱ aȱ formalȱ strategyȱ orȱ plan,ȱ includingȱ anȱ analysisȱ ofȱ howȱ wellȱ assetsȱ supportȱ businessȱ objectivesȱ andȱ isȱ characterisedȱ byȱ clarityȱofȱassetȬrelatedȱrolesȱandȱresponsibilities.ȱ Assetȱ capitalisationȱ thresholdȱ Theȱ minimumȱ valueȱ forȱ reportingȱ anȱ itemȱ asȱ aȱ nonȬcurrentȱ assetȱinȱtheȱfinancialȱstatements.ȱȱ Depreciationȱ DepreciationȱisȱusedȱtoȱallocateȱtheȱvalueȱofȱnonȬcurrentȱassetsȱ overȱtheirȱlifeȬcycle.ȱItȱisȱanȱindicatorȱofȱtheȱrateȱatȱwhichȱtheȱ ‘serviceȱ potential’ȱ ofȱ assetsȱ diminishes,ȱ orȱ isȱ consumed,ȱ overȱ theirȱlifeȬcycle.ȱ Financeȱleaseȱ Aȱ leaseȱ whereȱ substantiallyȱ allȱ ofȱ theȱ risksȱ andȱ benefitsȱ incidentalȱtoȱownershipȱhaveȱbeenȱpassedȱtoȱtheȱlessee.ȱ Grossȱbookȱ valueȱ Theȱcostȱofȱacquiring,ȱorȱtheȱfairȱvalueȱattributedȱto,ȱeachȱasset.ȱ LifeȬcycleȱ(orȱ Usefulȱlife)ȱ TheȱassetȱlifeȬcycleȱ(usefulȱlife)ȱisȱtheȱestimatedȱperiodȱofȱtimeȱ overȱ whichȱ anȱ assetȱ isȱ expectedȱ toȱ beȱ used,ȱ orȱ theȱ benefitsȱ representedȱ byȱ theȱ assetȱ areȱ expectedȱ toȱ beȱ derived,ȱ byȱ eachȱ entity.ȱ
  • 8. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 8 LifeȬcycleȱ costsȱ TheȱtotalȱcostsȱincurredȱoverȱtheȱlifeȬcycleȱofȱanȱasset.ȱȱInȱtheȱ caseȱ ofȱ ownedȱ assets,ȱ thisȱ includesȱ costsȱ associatedȱ withȱ acquiringȱ orȱ constructing,ȱ operating,ȱ maintainingȱ andȱ ultimatelyȱdisposingȱofȱtheȱasset.ȱȱ Netȱbookȱ valueȱ Theȱgrossȱbookȱvalueȱlessȱaccumulatedȱdepreciationȱcharges.ȱ NonȬassetȱ solutionsȱ Methodsȱofȱaddressingȱprogramȱdeliveryȱotherȱthanȱbyȱaddingȱ toȱ assetȱ capacity.ȱ Methodsȱ includeȱ reducingȱ demandȱ forȱ theȱ service,ȱ increasingȱ theȱ utilisationȱ ofȱ existingȱ assets,ȱ andȱ contractingȱoutȱfunctions.ȱ Portableȱandȱ attractiveȱ itemsȱ AssetsȱthatȱareȱbelowȱtheȱthresholdȱvalueȱforȱreportingȱasȱnonȬ currentȱassetsȱinȱanȱentity’sȱfinancialȱstatements,ȱbutȱthatȱneedȱ toȱ beȱ controlledȱ becauseȱ ofȱ theirȱ ‘portableȱ andȱ attractive’ȱ nature.ȱ ȱ
  • 9. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 9 Summary and Recommendations
  • 10. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 10 ȱ
  • 11. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 11 Summary Background 1. Infrastructure,ȱPlantȱandȱEquipmentȱ(IPE)ȱassets1ȱareȱaȱkeyȱresourceȱinȱ meetingȱbusinessȱobjectives.ȱTheȱeffectiveȱmanagementȱofȱIPEȱassetsȱinvolvesȱ theȱalignmentȱofȱassetȱplanningȱandȱdecisionȬmakingȱwithȱbusinessȱprioritiesȱ andȱstrategies.ȱSoundȱmanagementȱacrossȱtheȱassetȱlifeȬcycleȱfacilitatesȱbetterȱ decisionȬmakingȱ aboutȱ theȱ acquisition,ȱ ongoingȱ useȱ orȱ operationȱ andȱ ultimatelyȱ theȱ disposalȱ ofȱ assetsȱ atȱ theȱ rightȱ time,ȱ andȱ inȱ aȱ costȱ effectiveȱ manner.ȱ 2. TheȱAustralianȱGovernmentȱhasȱaȱsubstantialȱinvestmentȱinȱIPEȱassets.ȱȱ Asȱatȱ30ȱJuneȱ2005,ȱitȱreportedȱIPEȱassetsȱwithȱaȱgrossȱbookȱvalueȱofȱ$58ȱbillionȱ (netȱbookȱvalueȱ$32ȱbillion).2ȱȱȱȱ Audit objective and scope 3. Theȱ objectiveȱ ofȱ theȱ auditȱ wasȱ toȱ assessȱ whetherȱ selectedȱ Australianȱ Governmentȱ entitiesȱ wereȱ effectivelyȱ supportingȱ theirȱ businessȱ requirementsȱ throughȱplanningȱfor,ȱandȱmanagementȱof,ȱtheȱacquisition,ȱdisposalȱandȱuseȱofȱ theirȱIPEȱassets.ȱTheȱauditȱreviewedȱeachȱentity’sȱpoliciesȱandȱpracticesȱagainstȱ aȱseriesȱofȱauditȱcriteriaȱacrossȱtheȱfollowingȱcomponentsȱofȱassetȱmanagement:ȱ controlȱenvironment;ȱplanning;ȱacquisitions;ȱoperations;ȱandȱdisposals.ȱ Audited entities 4. Theȱauditȱwasȱconductedȱatȱtheȱfollowingȱentities:ȱ x AustralianȱFilm,ȱTelevisionȱandȱRadioȱSchool;ȱ x AustralianȱTradeȱCommission;ȱ x Departmentȱ ofȱ Immigrationȱ andȱ Multiculturalȱ Affairsȱ (formerlyȱ DepartmentȱofȱImmigrationȱandȱMulticulturalȱandȱIndigenousȱAffairs);ȱ andȱ x DepartmentȱofȱParliamentaryȱServices.ȱ 1 As defined in Australian Accounting Standard AAS 36 – Statement of Financial Position. 2 Excluding Specialist military equipment.
  • 12. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 12 Audit conclusion and key findings 5. TheȱANAOȱfoundȱthatȱIPEȱassetsȱwereȱbeingȱgenerallyȱwellȱmanagedȱ inȱ theȱ auditedȱ entities.ȱ Inȱ particular,ȱ theȱ entities’ȱ practicesȱ reflectedȱ anȱ increasingȱrecognitionȱofȱtheȱroleȱof,ȱandȱcommitmentȱto,ȱtheȱmanagementȱofȱ IPEȱ assets.ȱ ȱ Theȱ ANAOȱ alsoȱ foundȱ thatȱ theȱ auditedȱ entitiesȱ had,ȱ toȱ aȱ largeȱ extentȱ addressed,ȱ orȱ hadȱ actionȱ inȱ trainȱ toȱ address,ȱ theȱ assetȱ managementȱ criteriaȱevaluatedȱduringȱtheȱaudit.ȱȱ 6. EachȱofȱtheȱauditedȱentitiesȱhadȱwellȬdesignedȱandȱinformativeȱpolicyȱ andȱproceduralȱmaterialȱinȱplaceȱcoveringȱtheirȱoperationalȱassetȱrequirements.ȱȱ However,ȱ onlyȱ oneȱ entityȱ hadȱ adequatelyȱ included,ȱ inȱ itsȱ policyȱ andȱ proceduralȱ documentation,ȱ guidanceȱ andȱ instructionsȱ onȱ theȱ moreȱ strategicȱ issuesȱassociatedȱwithȱtheȱmanagementȱofȱassets.ȱȱForȱexample,ȱdetailsȱofȱtheȱ assetȱmanagementȱprinciplesȱrelevantȱtoȱtheȱentity;ȱincludingȱguidanceȱtoȱstaffȱ onȱtheȱinterpretationȱandȱapplicationȱofȱtheseȱprinciples.ȱȱ 7. Theȱauditȱfoundȱthatȱtheȱassetȱregisterȱinȱeachȱofȱtheȱauditedȱentitiesȱ containedȱ informationȱ concerningȱ theȱ identityȱ andȱ ownershipȱ of,ȱ andȱ theȱ accountingȱfor,ȱIPEȱassets.ȱȱEachȱofȱtheȱauditedȱentitiesȱhadȱgenerallyȱsoundȱ processesȱforȱmaintainingȱtheȱaccuracyȱandȱcompletenessȱofȱtheirȱassetȱregister,ȱ includingȱhavingȱclearlyȱestablishedȱrolesȱandȱresponsibilities.ȱȱȱ 8. Atȱtheȱtimeȱofȱtheȱaudit,ȱtheȱdevelopmentȱofȱformalȱassetȱstrategiesȱorȱ plansȱ wasȱ atȱ anȱ advancedȱ stageȱ inȱ threeȱ ofȱ theȱ entities.ȱ ȱ Theȱ extentȱ ofȱ assetȱ managementȱplanningȱwillȱdependȱonȱtheȱsizeȱandȱnatureȱofȱanȱentity’sȱassetȱ holdings,ȱ includingȱ theȱ criticalityȱ ofȱ thoseȱ assetsȱ toȱ theȱ entity’sȱ businessȱ objectives.ȱȱOverall,ȱbasedȱonȱtheȱproposedȱscopeȱofȱtheseȱplans,ȱandȱgivenȱtheȱ workȱalreadyȱcompleted,ȱtheȱauditȱassessedȱthatȱtheseȱplansȱhadȱtheȱpotential,ȱ onceȱfinalised,ȱtoȱbeȱusefulȱtoolsȱinȱtheȱmanagementȱofȱeachȱentity’sȱIPEȱassets.ȱ 9. Theȱ auditȱ alsoȱ foundȱ thatȱ eachȱ ofȱ theȱ auditedȱ entitiesȱ hadȱ soundȱ processesȱinȱplaceȱtoȱidentify,ȱassessȱandȱapproveȱtheirȱassetȱacquisitionȱneeds.ȱȱ Inȱeachȱentityȱtheseȱprocessesȱculminatedȱinȱtheȱdevelopmentȱofȱsoundȱassetȱ acquisitionȱorȱcapitalȱexpenditureȱplans.ȱEachȱofȱtheȱauditedȱentitiesȱalsoȱhadȱ effectiveȱ arrangementsȱ forȱ monitoringȱ andȱ reportingȱ progressȱ againstȱ theȱ approvedȱassetȱacquisitionȱplans.ȱ 10. Forȱ theȱ mostȱ part,ȱ theȱ auditedȱ entitiesȱ hadȱ soundȱ arrangementsȱ forȱ managingȱtheȱoperationȱofȱIPEȱassets,ȱparticularlyȱthoseȱIPEȱassetsȱcriticalȱtoȱ meetingȱtheirȱbusinessȱrequirements.ȱȱȱTheȱauditȱfoundȱthatȱmostȱofȱtheȱentitiesȱ hadȱ formalȱ andȱ wellȬmanagedȱ preventativeȱ maintenanceȱ programsȱ inȱ place.ȱȱ
  • 13. Summary ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 13 Inȱ addition,ȱ whereȱ applicable,ȱ soundȱ processesȱ wereȱ inȱ placeȱ toȱ manageȱ theȱ deliveryȱofȱassetȱmaintenanceȱandȱrelatedȱservicesȱunderȱcontract.ȱ 11. Inȱeachȱofȱtheȱauditedȱentities,ȱmanagersȱwereȱregularlyȱprovidedȱwithȱ financialȱ reportsȱ toȱ assistȱ theirȱ assetȬrelatedȱ decisionȬmaking.ȱ ȱ Formalȱ managementȱ reportingȱ wasȱ largelyȱ focussedȱ onȱ detailsȱ ofȱ actualȱ capitalȱ expenditure,ȱ togetherȱ withȱ aȱ comparisonȱ againstȱ plannedȱ orȱ budgetedȱ amounts.ȱ 12. Noneȱofȱtheȱauditedȱentitiesȱhadȱstructuredȱandȱcoordinatedȱprocessesȱ forȱmonitoringȱtheȱperformanceȱofȱtheirȱIPEȱassetsȱonȱanȱentityȬwideȱbasis.ȱȱInȱ threeȱofȱtheȱentities,ȱtheȱauditȱfoundȱthatȱindividualȱoperationalȱareasȱregularlyȱ monitoredȱ performanceȬbasedȱ informationȱ toȱ assistȱ inȱ theȱ managementȱ ofȱ selectedȱ IPEȱ assets.ȱ ȱ Thisȱ dataȱ wasȱ maintainedȱ withinȱ theȱ operationalȱ areasȱ responsibleȱforȱtheȱassetsȱinȱquestion.ȱȱTheȱauditȱfoundȱthatȱthisȱperformanceȱ informationȱwasȱfocussedȱonȱnonȬfinancialȱmeasures.ȱȱInȱaddition,ȱatȱtheȱtimeȱ ofȱ theȱaudit,ȱ noneȱ ofȱ theȱ entitiesȱ hadȱ specifiedȱ anyȱ standardsȱ relatingȱtoȱ theȱ financialȱperformanceȱofȱassets.ȱȱTheȱANAOȱconsidersȱthatȱaccessȱtoȱtimelyȱandȱ reliableȱ informationȱ onȱ theȱ financialȱ andȱ nonȬfinancialȱ performanceȱ ofȱ thoseȱ IPEȱassetsȱthatȱareȱsignificantȱorȱcriticalȱtoȱanȱentityȱisȱanȱimportantȱcomponentȱ ofȱeffectiveȱassetȱmanagement,ȱinȱparticular,ȱtoȱsupportȱinformedȱanalysisȱandȱ decisionȬmaking.ȱȱ 13. Thereȱwasȱlittleȱevidenceȱofȱstructuredȱorȱformalȱplanningȱinȱrelationȱtoȱ theȱ disposalȱ ofȱ IPEȱ assetsȱ amongstȱ theȱ auditedȱ entities.ȱ ȱ Rather,ȱ disposalȱ decisionsȱ wereȱ generallyȱ madeȱ onȱ anȱ adȬhocȱ basisȱ relyingȱ onȱ informationȱ obtainedȱ duringȱ otherȱ processes.ȱ Thisȱ included,ȱ forȱ example,ȱ observationsȱ madeȱduringȱtheȱconductȱofȱstocktakes,ȱinformationȱgainedȱfromȱmaintenanceȱ activitiesȱandȱassessmentsȱmadeȱduringȱassetȱacquisitionȱplanning.ȱ 14. Eachȱofȱtheȱassetȱacquisitionȱandȱdisposalȱtransactionsȱreviewedȱwereȱ foundȱtoȱhaveȱbeenȱproperlyȱapprovedȱandȱrecordedȱinȱtheȱassetȱregisterȱinȱaȱ timelyȱmanner.ȱȱForȱmostȱofȱtheseȱtransactions,ȱsufficientȱevidenceȱexistedȱtoȱ supportȱ orȱ justifyȱ theȱ decisionsȱ made.ȱ ȱ Inȱ particular,ȱ mostȱ ofȱ theȱ auditedȱ entitiesȱdemonstratedȱthatȱalternativesȱtoȱtheȱdisposalȱofȱassetsȱwereȱactivelyȱ consideredȱ duringȱ theȱ decisionȬmakingȱ process.ȱ ȱ Inȱ someȱ ofȱ theȱ auditedȱ entities,ȱtheȱANAOȱfoundȱaȱlackȱofȱconsistencyȱregardingȱtheȱlevelȱandȱnatureȱ ofȱdocumentationȱsupportingȱassetȱacquisitionȱandȱdisposalȱtransactions.ȱ 15. TheȱANAOȱhasȱmadeȱfiveȱrecommendationsȱdesignedȱtoȱstrengthenȱtheȱ arrangementsȱ forȱ theȱ managementȱ ofȱ IPEȱ assetsȱ inȱ Australianȱ Governmentȱ entities.ȱ
  • 14. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 14 Entities’ comments 16. Eachȱ ofȱ theȱ auditedȱ entitiesȱ respondedȱ positivelyȱ toȱ theȱ reportȱ andȱ agreedȱwithȱeachȱofȱtheȱrecommendations.ȱȱCommentsȱprovidedȱbyȱtheȱentitiesȱ inȱ relationȱ toȱ theȱ recommendationsȱ haveȱ beenȱ includedȱ inȱ theȱ bodyȱ ofȱ theȱ report.ȱ ȱ Anyȱ furtherȱ generalȱ commentsȱ onȱ theȱ reportȱ haveȱ beenȱ includedȱ inȱ Appendixȱ3.ȱ Sound and better practices 17. Theȱfollowingȱtableȱoutlinesȱsoundȱandȱbetterȱpracticesȱfoundȱduringȱ theȱ audit.ȱ Theseȱ practicesȱ wereȱ consideredȱ beneficialȱ toȱ improvingȱ theȱ effectivenessȱofȱassetȱmanagementȱpracticesȱinȱtheȱauditedȱentities.ȱ Table 1 Sound and better practices Reference Description Policy and procedures One entity included information on risks, controls and examples of better practices in its asset policy and procedural documentation. Asset planning The draft asset plan in one entity included an analysis of its existing asset-base against a desirable or optimal asset base and a schedule of potential risks to, and their impact on, the effective use of assets. Asset acquisitions Two of the audited entities had developed standard forms for use in documenting asset acquisition decisions. The application of these forms was supported by clear and well-defined thresholds to assist staff determine the relevant acquisition category. Managing performance One entity included a number of asset-related performance indicators in its Portfolio Budget Statements. Asset disposals One entity required its staff, as part of the asset disposal decision-making process, to assess if the asset could be used by another area of the organisation. In these cases, the availability of the equipment was notified using an electronic bulletin board. In one entity, as part of the preparation of annual asset acquisition plans, staff reviewed IPE assets approaching the end of their estimated useful lives. Source: ANAO, based on audit findings.
  • 15. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 15 Recommendations Theȱ followingȱ recommendationsȱ areȱ basedȱ onȱ theȱ findingsȱ ofȱ theȱ fieldworkȱ atȱ theȱ auditedȱ entities.ȱ ȱ Theȱ ANAOȱ considersȱ thatȱ theyȱ areȱ likelyȱ toȱ beȱ relevantȱ toȱ allȱ Australianȱ Governmentȱ entities.ȱ ȱ Allȱ entitiesȱ shouldȱ thereforeȱ assessȱ theȱ benefitsȱ ofȱ implementingȱtheȱrecommendationsȱinȱlightȱofȱtheirȱownȱcircumstances,ȱincludingȱtheȱ extentȱtoȱwhichȱeachȱrecommendation,ȱorȱpartȱthereof,ȱisȱaddressedȱbyȱpracticesȱalreadyȱ inȱplace.ȱȱ Recommendation No.1 Policies and proceduresȱ Para 2.16 TheȱANAOȱrecommendsȱentitiesȱinclude,ȱatȱaȱminimum,ȱ theȱ followingȱ informationȱ inȱ theirȱ assetȱ policyȱ andȱ proceduralȱdocumentation:ȱ x anȱ outlineȱ ofȱ theȱ assetȱ managementȱ principlesȱ relevantȱ toȱ theȱ entity,ȱ includingȱ guidanceȱ onȱ interpretingȱandȱapplyingȱthoseȱprinciples;ȱ x detailsȱ ofȱ keyȱ assetȱ managementȱ rolesȱ andȱ responsibilities;ȱandȱ x aȱ descriptionȱ ofȱ theȱ keyȱ policiesȱ andȱ practicesȱ relevantȱtoȱeachȱstageȱofȱtheȱassetȱlifeȬcycle.ȱ Recommendation No.2 Asset planning Para 2.26ȱ Theȱ ANAOȱ recommendsȱ entitiesȱ developȱ aȱ strategyȱ orȱ planȱ forȱ theȱ managementȱ ofȱ thoseȱ IPEȱ assetsȱ thatȱ areȱ criticalȱtoȱmeetingȱtheirȱbusinessȱobjectives.ȱ Recommendation No.3 Asset acquisitions Para 2.41ȱ Theȱ ANAOȱ recommendsȱ thatȱ entitiesȱ adopt,ȱ andȱ periodicallyȱ reȬassess,ȱ thresholdsȱ andȱ associatedȱ minimumȱ documentaryȱ requirementsȱ forȱ useȱ inȱ theȱ acquisitionȱofȱIPEȱassets.ȱ
  • 16. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 16 Recommendation No.4 Managing performance Para 2.61ȱ Theȱ ANAOȱ recommends,ȱ forȱ thoseȱ IPEȱ assetsȱ thatȱ areȱ criticalȱtoȱmeetingȱtheirȱbusinessȱobjectives,ȱthatȱentities:ȱ x developȱ appropriateȱ performanceȱ indicators,ȱ addressingȱ bothȱ financialȱ andȱ nonȬfinancialȱ factors,ȱ toȱ measureȱ theȱ efficientȱ andȱ effectiveȱ operationȱofȱthoseȱassets;ȱandȱ x regularlyȱcapture,ȱmonitorȱandȱreportȱtoȱrelevantȱ managers,ȱ informationȱ onȱ achievementsȱ againstȱ thoseȱindicators.ȱ Recommendation No.5 Disposal planningȱ Para 2.73 Toȱ assistȱ inȱ theȱ identificationȱ ofȱ IPEȱ assetsȱ thatȱ mayȱ requireȱ disposal,ȱ theȱ ANAOȱ recommendsȱ thatȱ entitiesȱ regularlyȱ monitorȱ thoseȱ assetsȱ nearingȱ theȱ endȱ ofȱ theirȱ estimatedȱusefulȱlives.ȱ Entities’ responses to the recommendations 18. Theȱauditedȱentitiesȱagreedȱtoȱtheȱrecommendations.ȱȱWhereȱprovided,ȱ entities’ȱ additionalȱ responsesȱ toȱ theȱ recommendationsȱ areȱ providedȱ inȱ theȱ bodyȱofȱtheȱreport.ȱ ȱ
  • 17. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 17 Audit Findings and Conclusions
  • 18. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 18 ȱ
  • 19. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 19 1. Introduction ThisȱChapterȱprovidesȱbackgroundȱinformationȱaboutȱtheȱaudit,ȱincludingȱdetailsȱofȱtheȱ auditȱscope,ȱobjectiveȱandȱfocus.ȱ Background to business support process audits 1.1 ThisȱauditȱisȱpartȱofȱaȱprogramȱofȱBusinessȱSupportȱProcessȱauditsȱthatȱ examineȱbusinessȱprocessesȱthatȱsupportȱtheȱdeliveryȱofȱservicesȱprovidedȱbyȱ AustralianȱGovernmentȱentities.ȱTheyȱareȱnormallyȱconductedȱatȱaȱselectionȱofȱ entitiesȱ underȱ theȱ provisionsȱ ofȱ sectionȱ 18ȱ ofȱ theȱ AuditorȬGeneralȱ Actȱ 1997,ȱ whichȱprovidesȱforȱtheȱexaminationȱofȱaȱparticularȱaspectȱofȱtheȱoperationsȱofȱ theȱ wholeȱ orȱ partȱ ofȱ theȱ Australianȱ Governmentȱ sector.ȱ Theȱ auditȱ recommendationsȱ areȱ framedȱ toȱ haveȱ generalȱ applications,ȱ andȱ theȱ auditȱ findingsȱareȱreportedȱtoȱParliamentȱinȱgenericȱterms,ȱwithoutȱbeingȱattributedȱ toȱ particularȱ entities.ȱ Whereȱ appropriate,ȱ referencesȱ toȱ soundȱ andȱ betterȱ practicesȱ haveȱ beenȱ includedȱ inȱ thisȱ report.ȱ Inȱ additionȱ toȱ thisȱ report,ȱ anȱ individualȱmanagementȱreportȱwasȱprovidedȱtoȱeachȱofȱtheȱentitiesȱexaminedȱ inȱtheȱaudit.ȱȱ Context of this audit Aȱ betterȱ service,ȱ notȱ aȱ betterȱ asset,ȱ isȱ aȱ keyȱ indicationȱ ofȱ successfulȱ assetȱ management.3ȱȱ 1.2 Infrastructure,ȱPlantȱandȱEquipmentȱ(IPE)ȱassets4ȱareȱaȱkeyȱresourceȱinȱ meetingȱbusinessȱobjectives.ȱTheȱeffectiveȱmanagementȱofȱIPEȱassetsȱinvolvesȱ theȱalignmentȱofȱassetȱplanningȱandȱdecisionȬmakingȱwithȱbusinessȱprioritiesȱ andȱstrategies.ȱSoundȱmanagementȱacrossȱtheȱassetȱlifeȬcycleȱfacilitatesȱbetterȱ decisionȬmakingȱ aboutȱ theȱ acquisition,ȱ ongoingȱ useȱ orȱ operationȱ andȱ ultimatelyȱ theȱ disposalȱ ofȱ assets,ȱ atȱ theȱ rightȱ timeȱ andȱ inȱ aȱ costȱ effectiveȱ manner.ȱ ȱ Asȱ wellȱ asȱ makingȱ aȱ keyȱ contributionȱ toȱ theȱ entity’sȱ business,ȱ informedȱ decisionsȱ aboutȱ assetsȱ alsoȱ assistȱ inȱ theȱ controlȱ ofȱ assetȬrelatedȱ expenditure.ȱ 1.3 TheȱAustralianȱGovernmentȱhasȱaȱsubstantialȱinvestmentȱinȱIPEȱassets.ȱȱ Asȱatȱ30ȱJuneȱ2005,ȱitȱreportedȱIPEȱassetsȱwithȱaȱgrossȱbookȱvalueȱofȱ$58ȱbillionȱ 3 Department of Treasury and Finance, Sustaining Our Assets, Victoria Government (Melbourne), 2000, p. 3. 4 As defined in Australian Accounting Standard AAS 36–Statement of Financial Position.
  • 20. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 20 (netȱbookȱvalueȱ$32ȱbillion).5ȱȱEachȱyear,ȱAustralianȱGovernmentȱentitiesȱoutlayȱ considerableȱ fundsȱ acquiringȱ additionalȱ andȱ replacementȱ IPEȱ assets,ȱ andȱ chargesȱ substantialȱ depreciationȱ onȱ theirȱ IPEȱ assetsȱ holdings.ȱ ȱ Tableȱ 1.1ȱ illustratesȱ theȱ extentȱ ofȱ theseȱ transactionsȱ forȱ eachȱ ofȱ theȱ lastȱ threeȱ financialȱ years.ȱ Table 1.1 IPE asset acquisitions and depreciation expense 2004–05 $ billion 2003–04 $ billion 2002–03 $ billion Acquisitions 8.9 6.9 6.6 Depreciation 6.3 6.2 5.9 Source: Commonwealth of Australia Consolidated Financial Statements. 6 Asset management 1.4 Theȱ effectiveȱ managementȱ ofȱ IPEȱ assetsȱ entailsȱ integratingȱ assetȱ planningȱ withȱ theȱ entity’sȱ strategicȱ and/orȱ businessȱ planningȱ processes,ȱ togetherȱwithȱtheȱimplementationȱofȱsoundȱdecisionȬmakingȱprocessesȱacrossȱ eachȱ ofȱ theȱ phasesȱ ofȱ theȱ assetȱ lifeȬcycle.ȱ ȱ Aȱ strongȱ internalȱ controlȱ environment,ȱ includingȱ aȱ robustȱ recordȱ ofȱ theȱ entity’sȱ assetsȱ andȱ clearȱ andȱ informativeȱguidanceȱonȱassetȱpoliciesȱandȱprocedures,ȱshouldȱbeȱinȱplaceȱtoȱ supportȱtheseȱdecisionȬmakingȱprocesses.ȱȱTheȱperformanceȱofȱassetsȱandȱassetȱ managementȱ processesȱ shouldȱ alsoȱ beȱ regularlyȱ measuredȱ toȱ assistȱ inȱ theȱ assessmentȱofȱwhetherȱstrategiesȱandȱdecisionsȱcontinueȱtoȱbeȱappropriate.ȱ 5 These amounts comprise IPE assets owned and covered by finance lease arrangements, but exclude Specialist military equipment. The amounts have been extracted from Commonwealth of Australia, Consolidated Financial Statements for the year ending 30 June 2005. A copy of these financial statements is available from <http://www.finance.gov.au/publications>. 6 Commonwealth of Australia, Consolidated Financial Statements for the years ending 30 June 2003, 2004 and 2005, (Note 23A in 2003 and Note 25A in 2004 and 2005). A copy of these financial statements is available from <http://www.finance.gov.au/publications>.
  • 21. Introduction ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 21 1.5 TheȱkeyȱelementsȱofȱassetȱmanagementȱareȱdemonstratedȱinȱFigureȱ1.1ȱ Figure 1.1 Asset management ASSET MANAGEMENT Control environment, including detailed policy and procedures and a robust record of assets Business strategies, priorities and Planning Assess business needs Analyse assets and key drivers Assess risks Acquisition Assess options and needs Assess lifecycle costs and risks Obtain approvals Operation Maintenance Safe custody Repairs Performance Disposal Surplus assets Assess options Transfers Obtain approvals Monitoring and reporting on progress and results Contributes to meeting business objectives objectives ȱ Source: Source: ANAO, adopted from information in Sustaining Our Assets, published by the Victorian Department of Treasury and Finance in December 2000. 1.6 Theȱ implementationȱ ofȱ anȱ effectiveȱ assetȱ managementȱ functionȱ can,ȱ amongstȱothersȱthings,ȱassistȱin:ȱ x maximisingȱtheȱserviceȱpotentialȱofȱexistingȱassets;ȱ x loweringȱtheȱoverallȱcostȱofȱowningȱandȱusingȱassets;ȱ x reducingȱtheȱdemandȱforȱnewȱassets;ȱandȱȱ x improvingȱassetȱperformanceȱandȱresultsȱbyȱestablishingȱclearȱlinesȱofȱ accountabilityȱandȱresponsibility.ȱ The principles of asset management 1.7 Adherenceȱ toȱ aȱ setȱ ofȱ commonȱ orȱ standardȱ principlesȱ isȱ widelyȱ acceptedȱ asȱ aȱ foundationȱ requirementȱ forȱ anȱ effectiveȱ assetȱ managementȱ framework.ȱȱAlthoughȱnotȱdefinitive,ȱtheȱANAOȱconsidersȱthatȱtheȱfollowingȱ
  • 22. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 22 principlesȱ areȱ generallyȱ applicableȱ toȱ assetȱ managementȱ arrangementsȱ inȱ AustralianȱGovernmentȱentities:7ȱ x businessȱ requirementsȱ shouldȱ formȱ theȱ basisȱ for,ȱ andȱ guideȱ assetȱ managementȱpracticesȱandȱdecisionȬmaking;ȱ x planningȱ forȱ assetsȱ shouldȱ beȱ integratedȱ withȱ businessȱ planningȱ processes;ȱ x assetȱ acquisitionȱ orȱ investmentȱ decisionsȱ shouldȱ beȱ basedȱ onȱ anȱ evaluationȱofȱalternativesȱ(includingȱnonȬassetȱsolutions)ȱandȱtakeȱintoȱ accountȱcosts,ȱbenefitsȱandȱrisksȱacrossȱeachȱasset’sȱlifeȬcycle;ȱ x responsibilityȱ andȱ accountabilityȱ forȱ theȱ safeȱ custody,ȱ useȱ andȱ performanceȱofȱassetsȱshouldȱbeȱclearlyȱestablishedȱandȱcommunicated;ȱ x assetȱ disposalȱ decisionsȱ shouldȱ beȱ basedȱ onȱ anȱ analysisȱ ofȱ disposalȱ methodsȱandȱbeȱdesignedȱtoȱachieveȱtheȱbestȱavailableȱnetȱreturn;ȱandȱ x aȱrobustȱinternalȱcontrolȱstructureȱisȱrequiredȱtoȱsupportȱeffectiveȱassetȱ managementȱpractices.ȱ 1.8 Eachȱ entityȱ shouldȱ determine,ȱ basedȱ onȱ theȱ size,ȱ natureȱ andȱ characteristicsȱofȱitsȱassetȱholdings,ȱtheȱrelevanceȱofȱtheseȱprinciples,ȱincludingȱ theȱ extentȱ toȱ whichȱ anyȱ particularȱ principleȱ shouldȱ beȱ applied.ȱ ȱ Theseȱ principles,ȱandȱtheȱassociatedȱproceduresȱandȱpractices,ȱshouldȱbeȱappliedȱinȱaȱ costȱeffectiveȱmanner,ȱcommensurateȱwithȱeachȱentity’sȱassetȱholdings.ȱȱȱ Factors influencing asset management in the Australian Government Sector 1.9 Aȱrangeȱofȱinitiativesȱoverȱtheȱlastȱseveralȱyearsȱhasȱfurtherȱcontributedȱ toȱtheȱneedȱforȱgreaterȱdisciplineȱandȱmoreȱactiveȱandȱcarefulȱmanagementȱofȱ assets.ȱSomeȱofȱtheseȱfactorsȱareȱdiscussedȱbelow.ȱ Legislative requirements 1.10 Theȱ Financialȱ Managementȱ andȱ Accountabilityȱ Actȱ 1997ȱ (FMAȱ Act)ȱ setsȱ outȱ theȱ principlesȱ forȱ theȱ properȱ useȱ andȱ managementȱ ofȱ Commonwealthȱ resources.ȱ Ofȱ particularȱ relevanceȱ isȱ sectionȱ 44,ȱ whichȱ definesȱ properȱ useȱ toȱ meanȱefficient,ȱeffectiveȱandȱethicalȱuse.ȱȱIPEȱassetsȱclearlyȱfallȱwithinȱtheȱambitȱ 7 These principles are based on the ANAO’s research, including a review of the asset management principles adopted at other levels of government and the findings of this audit.
  • 23. Introduction ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 23 ofȱ Commonwealthȱ resourcesȱ andȱ thereforeȱ shouldȱ beȱ subjectȱ toȱ prudentȱ managementȱinȱorderȱtoȱmeetȱtheseȱrequirements.ȱ 1.11 Whileȱ thereȱ isȱ noȱ equivalentȱ requirementȱ inȱ theȱ Commonwealthȱ Authoritiesȱ andȱ Companiesȱ Actȱ 1997ȱ (CACȱ Act),ȱ theȱ CACȱ Actȱ (Reportȱ onȱ Operations)ȱ Ordersȱ requireȱ details,ȱ bothȱ operationalȱ andȱ financial,ȱ ofȱ theȱ acquisitionȱandȱdisposalȱofȱnonȬcurrentȱassets,ȱincludingȱplantȱandȱequipmentȱ assets,ȱtoȱbeȱincludedȱinȱeachȱauthority’sȱannualȱreport.ȱ Accrual budgeting 1.12 Accrualȱ budgetingȱ recognisesȱ theȱ fullȱ costȱ ofȱ theȱ resourcesȱ usedȱ andȱ controlledȱbyȱanȱentity,ȱnotȱsimplyȱcashȱreceiptsȱandȱpayments.ȱȱAȱkeyȱelementȱ inȱtheȱsuccessfulȱintroductionȱofȱaccrualȱbudgetingȱisȱaȱbetterȱunderstanding,ȱ andȱ moreȱ activeȱ management,ȱ ofȱ assetsȱ andȱ theȱ attendantȱ costs.ȱ ȱ Effectivelyȱ meetingȱtheȱrequirementsȱassociatedȱwithȱaccrualȱbudgetingȱhasȱrequiredȱtheȱ introductionȱ ofȱ moreȱ structuredȱ assetȱ acquisitionȱ planningȱ processesȱ andȱ aȱ disciplinedȱapproachȱtoȱtheȱmanagementȱofȱassetȱreplacementȱfunding.ȱ 1.13 Underȱ theȱ accrualȱ budgetingȱ framework,ȱ moniesȱ appropriatedȱ toȱ AustralianȱGovernmentȱentitiesȱincludeȱfundsȱbasedȱonȱeachȱentity’sȱestimatedȱ annualȱ depreciationȱ expense.ȱ ȱ Theseȱ fundsȱ areȱ providedȱ toȱ supportȱ theȱ purchaseȱofȱreplacementȱassets.ȱȱTheȱfailureȱtoȱproperlyȱmanageȱtheseȱfundsȱ couldȱresultȱinȱanȱentityȱhavingȱinsufficientȱfundsȱavailable,ȱwithoutȱrecourseȱ toȱ fundsȱ earmarkedȱ forȱ otherȱ purposes,ȱ toȱ supportȱ theȱ maintenanceȱ ofȱ aȱ sufficientȱandȱappropriateȱassetȱbase.ȱȱ Financial reporting requirements 1.14 Australianȱ Governmentȱ entitiesȱ areȱ requiredȱ toȱ prepareȱ financialȱ statementsȱunderȱtheȱFMAȱAct,ȱtheȱCACȱActȱorȱtheȱCorporationsȱActȱ2001,ȱasȱ applicable.ȱȱTheseȱActs,ȱtogetherȱwithȱtheȱFinanceȱMinister’sȱOrdersȱ(FMOs),8ȱ setȱtheȱfinancialȱreportingȱframeworkȱforȱtheseȱentities.ȱ 1.15 Theȱ FMOs,ȱ whichȱ incorporateȱ Accountingȱ Standardsȱ andȱ otherȱ pronouncementsȱ ofȱ theȱ Australianȱ Accountingȱ Standardsȱ Boardȱ andȱ theȱ formerȱ Publicȱ Sectorȱ Accountingȱ Standardsȱ Board,ȱ areȱ designedȱ toȱ facilitateȱ 8 Each year the Minister for Finance and Administration issues requirements for the reporting of financial statements of Australian Government entities. These are issued as Finance Minister’s Orders, which comprise the Financial Management and Accountability (Financial Statement) Orders, the Commonwealth Authorities and Companies (Financial Statement) Orders and include the Requirements and Guidance for the Preparation of Financial Statements of Australian Government Entities. The FMOs have the force of law under section 63 of the Financial Management and Accountability Act 1997 and section 48 of the Commonwealth Authorities and Companies Act 1997 respectively.
  • 24. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 24 consistencyȱofȱaccountingȱpoliciesȱacrossȱtheȱAustralianȱGovernment.ȱThisȱisȱ importantȱtoȱensureȱcomparabilityȱbetween,ȱandȱenhanceȱtheȱusefulnessȱof,ȱtheȱ financialȱreportsȱofȱAustralianȱGovernmentȱentities.ȱ 1.16 TheȱFMOsȱindicateȱthatȱtheȱefficientȱandȱeffectiveȱmanagementȱofȱnonȬ currentȱassetsȱisȱessentialȱtoȱtheȱdeliveryȱofȱoutputsȱandȱoutcomesȱandȱthatȱaȱ prerequisiteȱforȱeffectiveȱassetȱmanagementȱisȱaccessȱtoȱrelevant,ȱreliableȱandȱ timelyȱinformation.ȱȱInȱthisȱregard,ȱanȱimportantȱelementȱinȱtheȱdevelopmentȱ andȱmaintenanceȱofȱaccurateȱassetȱinformationȱisȱtheȱadoptionȱofȱsoundȱassetȬ accountingȱpractices.ȱ 1.17 Relevantȱ assetȬrelatedȱ financialȱ reportingȱ requirementsȱ addressedȱ inȱ theȱ FMOsȱ include:ȱ revaluations;ȱ impairmentȱ testing;ȱ andȱ theȱ analysisȱ (andȱ disclosure)ȱofȱassetȱmovements.ȱȱInȱaddition,ȱAppendixȱCȱofȱtheȱFMOsȱforȱtheȱ 2004–05ȱreportingȱperiod,ȱalsoȱcontainedȱdetailedȱguidanceȱonȱaȱrangeȱofȱassetȱ accountingȱ issues,ȱ includingȱ informationȱ onȱ recognitionȱ thresholds,ȱ measurementȱ ofȱ acquisitions,ȱ depreciation,ȱ revaluations,ȱ assetȱ salesȱ andȱ disposals,ȱ transfersȱ betweenȱ entitiesȱ andȱ capitalisingȱ (orȱ expensing)ȱ maintenanceȱcosts.9ȱ 1.18 Theȱincreasingȱlevelȱofȱknowledgeȱandȱdisciplineȱrequiredȱtoȱaddressȱ theseȱ assetȬaccountingȱ andȱ externalȱ financialȱ reportingȱ requirementsȱ isȱ alsoȱ likelyȱ toȱ haveȱ aȱ positiveȱ impactȱ onȱ theȱ developmentȱ ofȱ accurateȱ andȱ informativeȱinternalȱmanagementȱreports.ȱ Asset management audits by the ANAO 1.19 Sinceȱ1995,ȱtheȱANAOȱhasȱconductedȱaȱnumberȱofȱaudits,ȱasȱpartȱofȱitsȱ generalȱ performanceȱ auditȱ program,ȱ evaluatingȱ assetȱ managementȱ arrangements.ȱȱRelevantȱreportsȱareȱasȱfollows:ȱȱ x AssetȱManagementȱ–ȱReportȱNo.27,ȱ1995–96;ȱ x AssetȱManagementȱ–ȱReportȱNo.41,ȱ1997–98;ȱȱ x Disposalȱ ofȱ Infrastructure,ȱ Plantȱ andȱ Equipmentȱ –ȱ Reportȱ No.8,ȱ 2001–02;ȱ andȱ x PurchasingȱProceduresȱandȱPracticesȱ–ȱReportȱNo.57,ȱ2004–05.ȱ 9 These guidelines have not been included in the FMOs for the 2005–06 reporting period.
  • 25. Introduction ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 25 1.20 Theȱaboveȱauditsȱfoundȱthatȱsoundȱassetȱmanagementȱpracticesȱwereȱ generallyȱ notȱ beingȱ consistentlyȱ applied.ȱ Inȱ particular,ȱ theȱ auditsȱ foundȱ thatȱ entitiesȱneededȱto:ȱ x adoptȱaȱstrategicȱapproachȱtoȱtheȱmanagementȱofȱassetsȱbyȱeffectivelyȱ integratingȱ theirȱ assetȱ planningȱ decisionsȱ intoȱ theirȱ corporateȱ andȱ resourceȱplanningȱframeworks;ȱ x introduceȱlifeȬcycleȱcostingȱmethodologies;ȱȱȱ x establishȱ baselineȱ costȱ andȱ performanceȱ standardsȱ forȱ keyȱ assetsȱ andȱ monitorȱoutcomesȱagainstȱtheseȱstandards;ȱ x implementȱ financialȱ managementȱ andȱ assetȱ managementȱ systemsȱ whichȱ facilitateȱ theȱ routineȱ captureȱ andȱ reportingȱ ofȱ performanceȱ informationȱforȱmanagementȱpurposes;ȱandȱ x makeȱ assetȱ disposalȱ decisionsȱ withinȱ aȱ frameworkȱ thatȱ includesȱ theȱ regularȱ monitoringȱ ofȱ theȱ conditionȱ andȱ performanceȱ ofȱ assetsȱ andȱ replacementȱplanning.ȱ Audit objective, criteria and approach Audit objective 1.21 Theȱ objectiveȱ ofȱ theȱ auditȱ wasȱ toȱ assessȱ whetherȱ selectedȱ Australianȱ Governmentȱ entitiesȱ wereȱ effectivelyȱ supportingȱ theirȱ businessȱ requirementsȱ throughȱtheȱplanningȱandȱmanagementȱofȱtheȱacquisition,ȱdisposalȱandȱuseȱofȱ theirȱIPEȱassets.ȱȱ Audit criteria 1.22 Theȱauditȱreviewedȱeachȱentity’sȱpoliciesȱandȱpracticesȱagainstȱaȱseriesȱ ofȱauditȱcriteriaȱacrossȱtheȱfollowingȱcomponentsȱofȱassetȱmanagement:ȱcontrolȱ environment;ȱplanning;ȱacquisitions;ȱoperations;ȱandȱdisposals.ȱ 1.23 TheȱauditȱcriteriaȱwereȱdevelopedȱfollowingȱaȱreviewȱofȱtheȱANAO’sȱ earlierȱassetȱmanagementȱaudits,ȱandȱaȱreviewȱofȱassetȱmanagementȱpractices,ȱ bothȱinȱotherȱAustralianȱGovernmentȱjurisdictionsȱandȱalsoȱinternationally.ȱInȱ particular,ȱtheȱfollowingȱpublicationsȱwereȱused:ȱ
  • 26. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 26 x Strategicȱ Assetȱ Managementȱ Guidelinesȱ –ȱ producedȱ byȱ theȱ Queenslandȱ StateȱGovernmentȱinȱ2002;ȱ10ȱȱ x SustainingȱourȱAssetsȱ–ȱproducedȱbyȱtheȱVictorianȱStateȱGovernmentȱinȱ 2000;ȱ11ȱandȱ x TotalȱAssetȱManagementȱpolicyȱpaperȱandȱvariousȱsupportingȱguidelinesȱ –ȱproducedȱbyȱtheȱNewȱSouthȱWalesȱStateȱGovernmentȱinȱ2004.ȱ12ȱ 1.24 TheȱdetailedȱauditȱcriteriaȱareȱshownȱinȱAppendixȱ1.ȱ Approach 1.25 Inȱ eachȱ ofȱ theȱ auditedȱ entities,ȱ fieldworkȱ involvedȱ interviewsȱ withȱ aȱ numberȱofȱtheȱentity’sȱofficers,ȱgeneralȱobservations,ȱreviewȱofȱrelevantȱpolicyȱ andȱproceduralȱdocumentationȱandȱtheȱexaminationȱofȱdocumentationȱrelatingȱ toȱ aȱ selectionȱ ofȱ assetȱ acquisitionȱ andȱ disposalȱ transactions.ȱ Inȱ thoseȱ entitiesȱ whereȱsignificantȱassetȱmanagementȱfunctionsȱwereȱprovidedȱunderȱcontract,ȱ theȱ auditȱ reviewedȱ processesȱ forȱ theȱ managementȱ ofȱ theȱ deliveryȱ ofȱ thoseȱ services.ȱȱ Audit coverage 1.26 Theȱauditȱwasȱconductedȱatȱthatȱfollowingȱentities:ȱ13ȱ x AustralianȱFilm,ȱTelevisionȱandȱRadioȱSchool;ȱ x AustralianȱTradeȱCommission;ȱ x Departmentȱ ofȱ Immigrationȱ andȱ Multiculturalȱ Affairsȱ (formerlyȱ DepartmentȱofȱImmigrationȱandȱMulticulturalȱandȱIndigenousȱAffairs);ȱ andȱ x DepartmentȱofȱParliamentaryȱServices.ȱȱ 10 This document can be accessed from the web site of the Queensland Department of Public Works. Refer to <http://www.build.qld.gov.au/amps/amps02.asp>. 11 This document can be accessed from the web site of the Victorian Department of Treasury and Finance. Refer to <http://www.dtf.vic.gov.au/dtf/rwp323.nsf/search/D62EBFC40F8477C805256A9A00726104?op endocument&Expand=7.2&>. 12 These documents can be accessed from web site of the NSW Treasury Department. Refer to <http://www.treasury.nsw.gov.au/tam/tam-intro.htm>. 13 These entities contained a good cross section of IPE asset classes, including general administrative or office equipment, furniture, fixtures, security equipment, information technology equipment, specialised communications equipment, motor vehicles and other specialised equipment.
  • 27. Introduction ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 27 1.27 Detailsȱofȱrelevantȱfinancialȱinformationȱforȱtheȱ2004–05ȱfinancialȱyearȱ forȱeachȱofȱtheȱauditedȱentitiesȱareȱshownȱinȱFigureȱ1.2.ȱȱDetailsȱofȱdisposalsȱ haveȱnotȱbeenȱincludedȱinȱFigureȱ1.2ȱasȱtheȱamountȱofȱdisposalsȱatȱeachȱofȱtheȱ auditedȱentitiesȱduringȱ2004–05ȱwasȱnotȱsignificant.ȱ Figure 1.2 Gross and Net book values of IPE assets at 30 June 2005, together with the value of IPE asset acquisitions for the year ended 30 June 2005 - 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 Entity 1 Entity 2 Entity 3 Entity 4 Entities Amount in $'M Gross Net Acquisitions Source: Entity annual reports for year ending June 30, 2005. 1.28 Eachȱofȱtheȱauditedȱentitiesȱwasȱprovidedȱwithȱaȱmanagementȱreportȱ detailingȱ theȱ auditȱ findings,ȱ recommendationsȱ forȱ improvement,ȱ whereȱ appropriate,ȱandȱconclusionsȱarisingȱfromȱtheȱfieldworkȱspecificȱtoȱthem.ȱȱȱȱ 1.29 Theȱ auditȱ wasȱ undertakenȱ inȱ accordanceȱ withȱ theȱ ANAO’sȱ Auditingȱ Standardsȱandȱwasȱcompletedȱatȱaȱcostȱofȱ$278ȱ000.ȱ
  • 28. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 28 2. Audit findings – Management of Infrastructure, Plant and Equipment Assets Thisȱchapterȱoutlinesȱtheȱresultsȱofȱtheȱauditȱagainstȱtheȱfollowingȱcomponentsȱofȱassetȱ management:ȱcontrolȱenvironment;ȱplanning;ȱacquisitions;ȱoperations;ȱandȱdisposals.ȱ Itȱalsoȱincludesȱanyȱsoundȱandȱbetterȱpracticesȱidentifiedȱduringȱtheȱauditȱandȱtheȱfiveȱ recommendationsȱ madeȱ toȱ improveȱ theȱ managementȱ ofȱ IPEȱ assetsȱ inȱ Australianȱ Governmentȱentitiesȱȱȱ Introduction 2.1 Theȱ effectiveȱ managementȱ ofȱ IPEȱ assetsȱ isȱ generallyȱ characterisedȱ byȱ theȱ existenceȱ ofȱ formalȱ andȱ structuredȱ planningȱ processesȱ toȱ determineȱ theȱ directionȱ andȱ prioritiesȱ ofȱ assetȱ managementȱ activity.ȱ ȱ Planningȱ shouldȱ beȱ supportedȱbyȱsoundȱdecisionȬmakingȱpracticesȱacrossȱtheȱassetȱlifeȬcycle,ȱthatȱ is,ȱacquisition,ȱoperationȱandȱdisposal.ȱȱUnderpinningȱtheseȱdecisionȬmakingȱ practicesȱ shouldȱ beȱ aȱ strongȱ controlȱ environment,ȱ incorporatingȱ aȱ robustȱ recordȱ ofȱ theȱ entity’sȱ assetsȱ andȱ clearȱ andȱ informativeȱ assetȱ policyȱ andȱ proceduralȱdocuments.ȱȱȱ Control environment Introduction 2.2 Aȱrobustȱandȱstructuredȱcontrolȱenvironmentȱisȱimportantȱtoȱunderpinȱ andȱsupportȱtheȱmanagementȱofȱIPEȱassets.ȱInȱthisȱpartȱofȱtheȱaudit,ȱtheȱANAOȱ assessedȱwhetherȱtheȱfollowingȱelementsȱwereȱinȱplace:ȱ x comprehensive,ȱ clearȱ andȱ readilyȱ accessibleȱ policiesȱ andȱ procedures,ȱ coveringȱeachȱstageȱofȱtheȱassetȱlifeȬcycle;ȱandȱ x aȱ formalȱ andȱ secureȱ recordȱ ofȱ assetȱ information,ȱ providingȱ accurate,ȱ reliableȱandȱtimelyȱinformationȱonȱtheȱentity’sȱassetȱholdings.ȱ Policies and procedures 2.3 Informativeȱ andȱ upȬtoȬdateȱ policyȱ andȱ proceduralȱ documentationȱ isȱ importantȱ toȱ fosterȱ consistencyȱ ofȱ understanding,ȱ interpretationȱ andȱ soundȱ practicesȱthroughoutȱtheȱentity.ȱTheȱabsenceȱofȱadequateȱguidanceȱmaterialȱcanȱ inferȱaȱlackȱofȱsupportȱfor,ȱandȱcanȱleadȱtoȱinconsistenciesȱin,ȱdecisionȬmakingȱ
  • 29. Audit findings – Management of Infrastructure, Plant and Equipment Assets ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 29 byȱ lineȱ managers.ȱ ȱ Inȱ relationȱ toȱ assets,ȱ theȱ absenceȱ ofȱ effectiveȱ guidanceȱ increasesȱtheȱrisksȱof:ȱ x inappropriateȱorȱexcessiveȱassetsȱbeingȱacquired;ȱ x assetsȱnotȱbeingȱproperlyȱrecordedȱinȱtheȱassetȱregister;ȱ x assetsȱnotȱbeingȱeffectivelyȱutilisedȱandȱmaintained;ȱandȱ x assetsȱbeingȱdisposedȱofȱinappropriately.ȱ Audit findings 2.4 Theȱ auditȱfoundȱthatȱeachȱofȱtheȱauditedȱentitiesȱhad,ȱorȱwereȱinȱtheȱ processȱofȱupdating,ȱpolicyȱandȱproceduralȱmaterialȱcontainingȱinformationȱonȱ assetȬrelatedȱ operationalȱ matters.ȱ ȱ Thisȱ documentationȱ includedȱ informationȱ onȱ stocktakeȱ processes,ȱ maintainingȱ theȱ assetȱ registerȱ andȱ detailsȱ ofȱ theȱ administrativeȱ requirementsȱ forȱ theȱ acquisitionȱ andȱ disposalȱ ofȱ assets.ȱ ȱ Thisȱ latterȱ componentȱ includedȱ guidanceȱ onȱ theȱ requirementsȱ ofȱ theȱ Commonwealthȱ Procurementȱ Guidelinesȱ (CPGs),ȱ informationȱ onȱ criticalȱ aspectsȱofȱdecisionȬmakingȱandȱdetailsȱofȱapprovalȱprocesses.ȱOneȱentityȱalsoȱ included,ȱ forȱ eachȱ majorȱ operationalȱ element,ȱ informationȱ onȱ risks,ȱ controlsȱ andȱexamplesȱofȱbetterȱpractices.ȱThisȱwasȱconsideredȱtoȱbeȱanȱexampleȱofȱaȱ soundȱandȱbetterȱpractice.ȱ 2.5 However,ȱassetȱpolicyȱandȱproceduralȱmaterialȱshouldȱcoverȱmoreȱthenȱ operationalȱaspects.ȱȱItȱshouldȱalsoȱaddressȱtheȱmoreȱstrategicȱissuesȱassociatedȱ withȱtheȱmanagementȱofȱassets,ȱincludingȱtheȱfollowing:ȱ x anȱ outlineȱ ofȱ theȱ assetȱ managementȱ principlesȱ relevantȱ toȱ theȱ entity;ȱ includingȱ guidanceȱ toȱ staffȱ onȱ theȱ interpretationȱ andȱ applicationȱ ofȱ theseȱprinciples;14ȱ x clarificationȱofȱkeyȱassetȱmanagementȱrolesȱandȱresponsibilities;ȱ x descriptionȱ ofȱ theȱ majorȱ assetȱ managementȱ practicesȱ required,ȱ orȱ inȱ place,ȱacrossȱeachȱphaseȱofȱtheȱassetȱlifeȬcycle;ȱandȱ x informationȱonȱprocessesȱforȱmonitoringȱtheȱperformanceȱofȱassets.ȱ 2.6 Theȱ extentȱ toȱ whichȱ thisȱ typeȱ ofȱ informationȱ shouldȱ beȱ addressedȱ inȱ assetȱ policyȱ andȱ proceduralȱ documentationȱ dependsȱ onȱ theȱ volume,ȱ natureȱ andȱ significanceȱ ofȱ theȱ entity’sȱ assets.ȱ ȱ Atȱ theȱ timeȱ ofȱ theȱ audit,ȱ theȱ ANAOȱ 14 Those principles generally applicable to Australian Government entities are discussed at paragraph 1.7 of this report.
  • 30. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 30 consideredȱ thatȱ theȱ assetȱ policyȱ andȱ proceduralȱ documentationȱ ofȱ onlyȱ oneȱ entityȱadequatelyȱaddressedȱtheseȱbroaderȱissues.ȱ 2.7 Appendixȱ2ȱsetsȱoutȱanȱoutlineȱofȱtheȱsuggestedȱcontentȱofȱassetȱpolicyȱ andȱ proceduralȱ documentȱ thatȱ isȱ likelyȱ toȱ beȱ relevantȱ toȱ manyȱ Australianȱ Governmentȱentities.ȱ 2.8 Inȱeachȱofȱtheȱauditedȱentities,ȱassetȱpolicyȱandȱproceduralȱmaterialȱwasȱ readilyȱavailableȱtoȱstaffȱthroughȱtheȱentity’sȱintranet.ȱȱAdditionally,ȱeachȱofȱtheȱ entitiesȱhadȱstructuredȱprocessesȱinȱplaceȱforȱmaintainingȱtheȱcurrencyȱofȱitsȱ assetȱpolicyȱandȱproceduralȱmaterial.ȱȱTwoȱofȱtheȱentitiesȱreviewedȱtheirȱpolicyȱ andȱ proceduralȱ materialȱ atȱ fixedȱ intervals.ȱ ȱ Inȱ theȱ remainingȱ twoȱ entities,ȱ relevantȱstaffȱmembersȱhadȱbeenȱnominatedȱasȱresponsibleȱforȱmaintainingȱtheȱ currencyȱ ofȱ materialȱ asȱ theȱ needȱ arose.ȱ ȱ Inȱ eachȱ ofȱ theȱ auditedȱ entities,ȱ theȱ ANAOȱidentifiedȱthatȱassetȱpolicyȱhadȱrecentlyȱbeen,ȱorȱwasȱinȱtheȱprocessȱofȱ beingȱ updated,ȱ toȱ reflectȱ changesȱ inȱ theȱ entity’sȱ operatingȱ environmentȱ orȱ practices.ȱ ȱ Forȱ example,ȱ assetȱ policyȱ hadȱ beenȱ updatedȱ toȱ reflectȱ theȱ requirementsȱ ofȱ theȱ newȱ CPGs15ȱ and,ȱ inȱ oneȱ case,ȱ wasȱ beingȱ updatedȱ atȱ theȱ timeȱ ofȱ theȱ audit,ȱ toȱ includeȱ moreȱ guidanceȱ toȱ staffȱ onȱ theȱ managementȱ ofȱ assets.ȱ Asset recording Asset registers 2.9 Aȱrobustȱassetȱregisterȱisȱfundamentalȱtoȱtheȱmaintenanceȱofȱaȱcompleteȱ andȱaccurateȱrecordȱofȱassetȱholdings,ȱandȱtoȱsupportȱeffectiveȱassetȱdecisionȬ making.ȱ ȱ Anȱ assetȱ registerȱ shouldȱ beȱ theȱ primeȱ sourceȱ ofȱ assetȱ information,ȱ includingȱthatȱrequiredȱtoȱsatisfyȱfinancialȱstatementȱreportingȱrequirements.ȱȱ Theȱ assetȱ registerȱ shouldȱ beȱ structuredȱ andȱ meetȱ theȱ variousȱ informationȱ requirementsȱofȱassetȱmanagersȱthroughoutȱtheȱentity.ȱ 2.10 Whileȱ theȱ contentȱ ofȱ theȱ assetȱ registerȱ willȱ largelyȱ dependȱ onȱ theȱ quantityȱ andȱ natureȱ ofȱ assetsȱ heldȱ byȱ theȱ entity,ȱ itȱ should,ȱ inȱ broadȱ terms,ȱ containȱinformationȱsuchȱas:ȱ x identity:ȱincludesȱdescription,ȱserialȱnumber,ȱuniqueȱassetȱnumber;ȱȱ x accounting:ȱincludesȱcostȱandȱdateȱofȱacquisition,ȱlifeȬcycleȱ(usefulȱlife),ȱ depreciationȱ rate,ȱ depreciationȱ amount,ȱ residualȱ value,ȱ associatedȱ liabilities;ȱdetailsȱofȱrevaluationsȱandȱdisposalȱconsideration;ȱ 15 The new CPGs were introduced in January 2005.
  • 31. Audit findings – Management of Infrastructure, Plant and Equipment Assets ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 31 x ownership:ȱ includingȱ location,ȱ custodian,ȱ specialȱ identifiers,ȱ covenantsȱ orȱrestrictions;ȱandȱ x performance:ȱ listingȱ ofȱ performanceȱ measuresȱ orȱ indicators,ȱ suchȱ asȱ capacityȱorȱlifeȬcycle,ȱcondition,ȱusageȱlevelsȱandȱcostsȱofȱoperating.ȱ Audit findings 2.11 Eachȱofȱtheȱauditedȱentitiesȱmaintainedȱaȱformalȱrecordȱofȱtheirȱassetȱ holdings.ȱȱInȱthreeȱofȱtheȱentitiesȱtheȱassetȱregisterȱwasȱintegratedȱwithȱtheirȱ FinancialȱManagementȱInformationȱSystemȱ(FMIS).ȱȱTheȱlackȱofȱintegrationȱinȱ theȱremainingȱentityȱmeantȱthatȱacquisitionȱandȱdisposalȱinformationȱhadȱtoȱbeȱ separatelyȱinputȱintoȱbothȱsystems.ȱȱ 2.12 Theȱauditȱfoundȱthatȱtheȱassetȱregisterȱinȱeachȱofȱtheȱauditedȱentitiesȱ containedȱ anȱ appropriateȱ levelȱ ofȱ informationȱ inȱ relationȱ toȱ theȱ followingȱ factorsȱ identifiedȱ above:ȱ identity;ȱ accounting;ȱ andȱ ownership.ȱ ȱ Noneȱ ofȱ theȱ entitiesȱ recordedȱ informationȱ onȱ theȱ performanceȱ ofȱ individualȱ assetsȱ inȱ theirȱ assetȱregister.16ȱ 2.13 ȱTheȱ auditȱ alsoȱ foundȱ thatȱ eachȱ ofȱ theȱ auditedȱ entitiesȱ hadȱ generallyȱ soundȱprocessesȱforȱmaintainingȱtheȱaccuracyȱandȱcompletenessȱofȱtheirȱassetȱ register.ȱȱThisȱincludedȱcontrolsȱtoȱfacilitateȱtheȱpromptȱrecordingȱofȱauthorisedȱ assetȱ acquisitionȱ andȱ disposalȱ transactions,ȱ theȱ conductȱ ofȱ regularȱ reconciliationsȱ betweenȱ theȱ assetȱ registerȱ andȱ theȱ generalȱ ledgerȱ andȱ undertakingȱregularȱ(generallyȱannual)ȱassetȱstocktakes.ȱ 2.14 Anotherȱ factorȱ contributingȱ toȱ theȱ effectiveȱ maintenanceȱ ofȱ anȱ assetȱ registerȱ isȱ clarityȱ ofȱ responsibilities.ȱ ȱ Inȱ eachȱ entityȱ responsibilityȱ forȱ theȱ maintenanceȱ ofȱ theȱ assetȱ registerȱ wasȱ clearlyȱ established.ȱ ȱ Generally,ȱ responsibilityȱresidedȱwithȱaȱspeciallyȱdesignatedȱassetȱteamȱorȱofficer.ȱȱInȱoneȱ largeȱentity,ȱoperatingȱinȱaȱdevolvedȱenvironment,ȱindividualȱstateȱofficesȱwereȱ responsibleȱforȱmaintainingȱtheirȱownȱassetȱregisters.ȱȱInȱthisȱcase,ȱsomeȱcontrolȱ wasȱstillȱexercisedȱbyȱaȱcentralisedȱassetȱteam,ȱthroughȱtheȱconductȱofȱperiodicȱ qualityȱreviewȱchecksȱofȱtheȱtransactionsȱprocessedȱtoȱtheseȱregisters.ȱȱ 2.15 Overall,ȱtheȱANAOȱassessedȱtheȱinformationȱinȱtheȱassetȱregistersȱatȱtheȱ auditedȱentitiesȱtoȱbeȱreliable.ȱȱHowever,ȱitȱdidȱfindȱaȱnumberȱofȱinstancesȱofȱ breakdownsȱ inȱ theȱ controlsȱ overȱ theȱ accuracyȱ andȱ completenessȱ ofȱ information.ȱȱTheseȱincluded:ȱ 16 The use and reporting of performance information is discussed further at paragraphs 2.49 to 2.62.
  • 32. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 32 x delaysȱ inȱ theȱ resolutionȱ ofȱ errorsȱ andȱ omissionsȱ identifiedȱ duringȱ stocktakes;ȱȱ x inappropriateȱ levelsȱ ofȱ userȬaccessȱ toȱ assetȱ records,ȱ includingȱ potentiallyȱincompatibleȱfunctions;ȱandȱ x lackȱofȱtimelinessȱofȱprocessingȱassetsȱdisposedȱofȱatȱauction.ȱ Recommendation No.1 2.16 TheȱANAOȱrecommendsȱentitiesȱinclude,ȱasȱaȱminimum,ȱtheȱfollowingȱ informationȱinȱtheirȱassetȱpolicyȱandȱproceduralȱdocumentation:ȱ x anȱ outlineȱ ofȱ theȱ assetȱ managementȱ principlesȱ relevantȱ toȱ theȱ entity,ȱ includingȱguidanceȱonȱinterpretingȱandȱapplyingȱtheseȱprinciples;ȱ x detailsȱofȱkeyȱassetȱmanagementȱrolesȱandȱresponsibilities;ȱandȱ x aȱdescriptionȱofȱtheȱkeyȱpoliciesȱandȱpracticesȱrelevantȱtoȱeachȱstageȱofȱ theȱassetȱlifeȬcycle.ȱ Entities’ responses 2.17 Eachȱofȱtheȱauditedȱentitiesȱagreedȱwithȱtheȱrecommendation.ȱ Asset planning Introduction 2.18 Eachȱ entityȱ shouldȱ carefullyȱ assess,ȱ inȱ lightȱ ofȱ theȱ size,ȱ natureȱ andȱ significanceȱ ofȱ itsȱ assetȱ holdingsȱ (includingȱ theȱ criticalityȱ ofȱ thoseȱ assetsȱ toȱ meetingȱ itsȱ businessȱ objectives)ȱ theȱ extentȱ andȱ natureȱ ofȱ assetȱ planningȱ required.ȱ 2.19 Theȱ developmentȱ ofȱ anȱ assetȱ strategyȱ orȱ planȱ shouldȱ assistȱ inȱ coordinatingȱ theȱ identificationȱ andȱ implementationȱ ofȱ assetȱ managementȱ prioritiesȱ andȱ practices.ȱ ȱ Moreȱ specifically,ȱ theȱ planȱ shouldȱ beȱ designedȱ toȱ assistȱ theȱ entityȱ assessȱ whetherȱ theȱ volume,ȱ natureȱ andȱ compositionȱ ofȱ itsȱ assetsȱremainȱappropriateȱfor,ȱandȱcompatibleȱwith,ȱitsȱbusinessȱrequirements.ȱȱȱȱ 2.20 Effectiveȱassetȱplanningȱhelpsȱorganisationȱtoȱbetterȱalignȱtheirȱassetsȱ withȱtheirȱbusinessȱrequirements.ȱȱForȱexample,ȱeffectiveȱformalȱplanningȱcanȱ assistȱin:ȱ
  • 33. Audit findings – Management of Infrastructure, Plant and Equipment Assets ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 33 x identifyingȱ assetsȱ thatȱ doȱ notȱ adequatelyȱ support,ȱ orȱ whichȱ lackȱ theȱ capacityȱorȱfunctionalityȱtoȱadequatelyȱaddress,ȱbusinessȱrequirementsȱ orȱoperatingȱstandards;ȱ x identifyingȱexcessȱassetȱcapacityȱand/orȱfunctionality;ȱ x managingȱtheȱdemandȱforȱnewȱassets;ȱ x identifyingȱandȱcontrollingȱfutureȱassetȬrelatedȱcosts;ȱandȱ x maintainingȱandȱusingȱexistingȱassetsȱmoreȱeffectively.ȱ 2.21 Theȱlevelȱofȱassetȱplanning,ȱincludingȱtheȱstructureȱandȱlevelȱofȱdetailȱinȱ anȱassetȱmanagementȱplanȱwillȱdependȱlargelyȱonȱtheȱvolumeȱandȱnatureȱofȱ eachȱentity’sȱassets,ȱasȱwellȱasȱitsȱoperatingȱenvironment.ȱȱTableȱ2.1ȱoutlinesȱtheȱ betterȱpracticeȱelementsȱofȱanȱassetȱplan.ȱ Table 2.1 Contents of an asset plan Component Description Identification of business requirements and priorities Asset management decisions should be guided by a clear understanding of the entity’s business requirements, including service levels and standards, priorities and stakeholder expectations. Analysis of existing assets This involves matching the performance of existing assets against the entity’s business requirements, in the context of available resources, and developing strategies to deal with any gaps identified between the existing asset portfolio and the optimum level and type of assets. Analysis of critical drivers The critical drivers or elements in the delivery of the asset management function should be outlined, including details of related plans, priorities, activities and responsibilities across each stage of the asset life- cycle. Risk assessment Asset management decisions should be made in light of an analysis and evaluation of the risks to the entity’s business associated with the acquisition, use and disposal of assets. Performance measures Details of the measures and mechanisms used to assess the performance of the strategies in the asset management plan, and the performance of individual asset classes in supporting the entity’s business. Source: ANAO, based on information in Asset Strategy Planning (TAM04-1), Total Asset Management Guidelines, published by the NSW Treasury in September 2004.
  • 34. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 34 Audit findings 2.22 Theȱ auditȱ foundȱ anȱ increasingȱ levelȱ ofȱ attentionȱ beingȱ givenȱ toȱ assetȱ planningȱ inȱ theȱ entitiesȱ audited.ȱ ȱ Forȱ example,ȱ atȱ theȱ timeȱ ofȱ theȱ audit,ȱ theȱ developmentȱofȱformalȱassetȱstrategiesȱorȱplansȱwasȱatȱanȱadvancedȱstageȱinȱ threeȱofȱtheȱentities.ȱȱOneȱentityȱwasȱupdatingȱandȱrevisingȱanȱexistingȱassetȱ plan,ȱwhileȱinȱtheȱotherȱtwoȱentities,ȱtheȱplansȱunderȱdevelopmentȱwereȱnewȱ initiatives.ȱ 2.23 Basedȱonȱtheȱproposedȱscopeȱofȱtheirȱassetȱplans,ȱandȱgivenȱtheȱworkȱ alreadyȱ completed,ȱ theȱ ANAOȱ assessedȱ thatȱ theȱ plansȱ inȱ twoȱ ofȱ theȱ entitiesȱ hadȱ theȱ potential,ȱ onceȱ theyȱ wereȱ finalised,ȱ toȱ beȱ usefulȱ toolsȱ inȱ theȱ managementȱofȱtheȱentity’sȱassets.ȱȱInȱparticular,ȱtheseȱplansȱcontained:ȱ x anȱoutlineȱofȱassetȱmanagementȱrolesȱandȱresponsibilities;ȱ x aȱ clearȱ linkȱ toȱ corporateȱ andȱ businessȱ planning,ȱ includingȱ theȱ identificationȱofȱthoseȱbusinessȱobjectivesȱrequiringȱtheȱsupportȱofȱIPEȱ assets;ȱ x anȱanalysisȱofȱcurrentȱandȱfutureȱissuesȱandȱprioritiesȱimpactingȱonȱtheȱ demandȱ forȱ assets,ȱ includingȱ emergingȱ technologiesȱ andȱ evolvingȱ stakeholderȱrequirements;ȱandȱ x identificationȱofȱtheȱcriticalȱdriversȱrelatingȱtoȱtheȱuseȱandȱmanagementȱ ofȱ assets,ȱ includingȱ guidanceȱ onȱ interpretingȱ andȱ applyingȱ policiesȱ acrossȱtheȱassetȱlifeȬcycle.ȱ 2.24 Inȱaddition,ȱtheȱassetȱmanagementȱplanȱbeingȱdevelopedȱinȱoneȱofȱtheseȱ entitiesȱcontainedȱanȱanalysisȱofȱitsȱexistingȱassetȱbaseȱagainstȱaȱdesirableȱorȱ optimalȱassetȱbase.ȱȱSuchȱanȱassessmentȱwasȱconsideredȱtoȱbeȱaȱusefulȱinitiativeȱ andȱisȱpotentially,ȱonceȱtheȱplanȱisȱfinalisedȱandȱapproved,ȱaȱvaluableȱsourceȱofȱ informationȱ aboutȱ theȱ entity’sȱ assets.ȱ Forȱ example,ȱ theȱ assessmentȱ couldȱ beȱ usedȱ toȱ assistȱ inȱ theȱ identificationȱ ofȱ assetsȱ thatȱ needȱ toȱ beȱ upgraded,ȱ supplementedȱ orȱ replaced.ȱ ȱ Itȱ couldȱ alsoȱ assistȱ inȱ assessingȱ theȱ degreeȱ ofȱ ongoingȱ maintenanceȱ necessaryȱ toȱ maintainȱ anȱ appropriateȱ assetȱ base.ȱ ȱ Theȱ analysisȱwasȱundertakenȱacrossȱtheȱfollowingȱdimensions:ȱȱ x serviceȱ dependency:ȱ theȱ extentȱ toȱ whichȱ theȱ entityȱ isȱ dependentȱ onȱ itsȱ assets;ȱȱ x utilisation:ȱhowȱeffectivelyȱexistingȱassetsȱareȱbeingȱutilised;ȱȱ x location:ȱareȱsufficientȱassetsȱinȱtheȱcorrectȱlocations;ȱȱ x capacity:ȱisȱthereȱsufficientȱcapacityȱamongstȱexistingȱassets;ȱandȱȱ x functionality:ȱareȱexistingȱassetsȱsuitableȱtoȱsupportȱtheȱbusiness.ȱ
  • 35. Audit findings – Management of Infrastructure, Plant and Equipment Assets ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 35 2.25 Theȱdraftȱplanȱalsoȱcontainedȱaȱscheduleȱofȱpotentialȱrisksȱto,ȱandȱtheirȱ impactȱon,ȱtheȱeffectiveȱuseȱofȱassets.ȱȱTheȱidentificationȱofȱtheȱrisksȱassociatedȱ withȱtheȱuseȱofȱassetsȱisȱcriticalȱinȱassistingȱentitiesȱtoȱminimiseȱdisruptionsȱtoȱ businessȱ from,ȱ forȱ example,ȱ assetȱ breakdowns.ȱ ȱ Itȱ canȱ alsoȱ beȱ usefulȱ inȱ reducingȱunplannedȱassetȬrelatedȱexpenditure.ȱȱȱ Recommendation No.2 2.26 Theȱ ANAOȱ recommendsȱ entitiesȱ developȱ aȱ strategyȱ orȱ planȱ forȱ theȱ managementȱ ofȱ thoseȱ IPEȱ assetsȱ thatȱ areȱ criticalȱ toȱ meetingȱ theirȱ businessȱ objectives.ȱ Entities’ responses 2.27 Eachȱofȱtheȱauditedȱentitiesȱagreedȱtoȱtheȱrecommendation.ȱ Acquisitions Introduction 2.28 Structuredȱandȱcoordinatedȱprocessesȱshouldȱbeȱinȱplaceȱtoȱfacilitateȱtheȱ regularȱidentificationȱandȱapprovalȱofȱtheȱentity’sȱassetȱacquisitionȱneeds.ȱSuchȱ processesȱassistȱinȱdeterminingȱprioritiesȱthatȱareȱconsistentȱwithȱtheȱentity’sȱ objectives,ȱ andȱ inȱ managingȱ theȱ expenditureȱ ofȱ availableȱ funds.ȱ Onceȱ acquisitionȱneedsȱareȱdetermined,ȱprogressȱagainstȱplansȱshouldȱbeȱregularlyȱ monitored,ȱincludingȱmechanismsȱtoȱdealȱwithȱanyȱreȬassessmentȱofȱpriorities.ȱ 2.29 Acquisitionȱdecisionsȱshouldȱbeȱmadeȱonȱtheȱbasisȱofȱanȱassessmentȱofȱ relevantȱ costs,ȱ togetherȱ withȱ theȱ risksȱ andȱ benefitsȱ associatedȱ withȱ theȱ proposedȱ acquisition.ȱ Whereȱ relevant,ȱ itȱ isȱ alsoȱ appropriateȱ toȱ considerȱ alternativesȱ toȱ assetȱ ownershipȱ including,ȱ amongstȱ otherȱ things,ȱ leasing,ȱ increasingȱ theȱ utilisationȱ ofȱ existingȱ assets,ȱ contractingȬoutȱ functionsȱ toȱ anȱ externalȱproviderȱ(therebyȱreducingȱtheȱrequirementȱtoȱownȱorȱutiliseȱassets),ȱ andȱmanagingȱaȱreductionȱinȱtheȱdemandȱforȱassets.ȱ Acquisition planning 2.30 Theȱ ANAOȱ assessedȱ theȱ extentȱ andȱ natureȱ ofȱ planningȱ forȱ assetȱ acquisitions.ȱ ȱ Theȱ auditȱ alsoȱ assessedȱ whetherȱ acquisitionȱ plansȱ wereȱ beingȱ monitored,ȱandȱreȬassessed,ȱinȱlightȱofȱactualȱacquisitionȱactivity.ȱȱ
  • 36. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 36 Audit findings 2.31 TheȱauditȱfoundȱthatȱeachȱofȱtheȱentitiesȱhadȱformalȱandȱcoȬordinatedȱ planningȱ processesȱ inȱ placeȱ toȱ identify,ȱ assessȱ andȱ approveȱ theirȱ assetȱ acquisitionȱ needs.ȱ Amongstȱ theȱ auditedȱ entities,ȱ informationȱ aboutȱ assetȱ acquisitionȱneedsȱwasȱobtainedȱfromȱaȱvarietyȱofȱsources,ȱincluding:ȱ x anȱanalyseȱofȱtheȱconditionȱandȱutilityȱofȱIPEȱassets,ȱparticularly,ȱthoseȱ reachingȱtheȱendȱofȱtheirȱlifeȬcycle;ȱ x prioritiesȱidentifiedȱinȱotherȱplanningȱdocumentsȱorȱbyȱprojectȬspecificȱ groups,ȱforȱexample,ȱsteeringȱcommittees;ȱ x anȱassessmentȱofȱtheȱimpactȱofȱchangesȱinȱtechnology;ȱandȱ x anȱ assessmentȱ ofȱ IPEȱ assetsȱ incurringȱ maintenanceȱ costsȱ aboveȱ acceptableȱlevels.ȱ 2.32 Inȱeachȱofȱtheȱauditedȱentitiesȱtheȱpreparationȱofȱassetȱacquisitionȱplansȱ occurredȱ inȱ theȱ contextȱ ofȱ theȱ entity’sȱ broaderȱ strategiesȱ andȱ priorities,ȱ includingȱthoseȱimpactingȱonȱtheȱdemandȱforȱassets.ȱȱInȱaddition,ȱeachȱofȱtheȱ auditedȱ entitiesȱ alsoȱ hadȱ wellȬdefinedȱ arrangementsȱ supportingȱ theȱ monitoringȱandȱreportingȱofȱprogressȱagainstȱapprovedȱacquisitionȱplans.ȱȱForȱ theȱmostȱpart,ȱmonitoringȱreliedȱonȱtheȱprovisionȱofȱreportsȱfromȱtheȱcentralȱ financeȱareaȱ(orȱequivalent).ȱ 2.33 Tableȱ 2.2ȱ outlinesȱ examplesȱ ofȱ theȱ soundȱ andȱ betterȱ assetȱ acquisitionȱ planningȱpracticesȱfoundȱamongstȱtheȱauditedȱentities.ȱ Table 2.2 Sound and better asset acquisition planning practices Description Preparation of asset acquisition plans and budgets was co-ordinated through a designated officer or specialist section. Detailed guidelines, including standardised templates, were provided to line areas to explain the capital expenditure process, including the identification of funding parameters, and to assist with the submission of bids in the correct format. Formalised and well-defined processes for reviewing and, where necessary, prioritising asset acquisition bids. Unique fields were created in the FMIS to facilitate the tracking of asset purchases and the monitoring of capital expenditure by operational areas. Source: ANAO, based on the results of the audit.
  • 37. Audit findings – Management of Infrastructure, Plant and Equipment Assets ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 37 Acquisition activity 2.34 Theȱfirstȱstageȱofȱaȱprocurementȱprocessȱisȱtoȱdefineȱtheȱrequirement.ȱ Theȱ extentȱ toȱ whichȱ requirementsȱ areȱ definedȱ shouldȱ reflectȱ theȱ natureȱ andȱ significanceȱofȱtheȱproposedȱpurchase.17ȱȱInȱrelationȱtoȱtheȱacquisitionȱofȱassets,ȱ thisȱnormallyȱinvolves,ȱatȱaȱminimum:ȱ x aȱdescriptionȱofȱtheȱasset(s)ȱtoȱbeȱacquired;ȱ x aȱstatementȱofȱtheȱreasonsȱfor,ȱorȱjustificationȱof,ȱtheȱacquisition;ȱandȱ x anȱestimateȱofȱtheȱcostȱofȱtheȱacquisition.ȱ 2.35 Inȱtheȱcaseȱofȱmoreȱcomplexȱorȱsignificantȱassetȱacquisitions,ȱincludingȱ thoseȱ thatȱ areȱ strategicallyȱ importantȱ toȱ theȱ entity,ȱ theȱ definitionȱ ofȱ requirementsȱshouldȱaddressȱaȱnumberȱofȱadditionalȱelements.ȱȱThisȱinvolvesȱ preparingȱaȱdetailedȱbusinessȱcaseȱoutlining:ȱ x theȱreasonsȱorȱjustificationȱforȱtheȱacquisition,ȱincludingȱdescribingȱhowȱ theȱacquisitionȱcontributesȱtoȱtheȱentity’sȱbusiness;ȱ x detailsȱofȱnonȬassetȱsolutions,ȱforȱexample,ȱhiringȱorȱleasingȱtheȱitem,ȱorȱ usingȱorȱextendingȱexistingȱresources;ȱ x theȱrelevantȱcostsȱacrossȱtheȱasset’sȱlifeȬcycle;ȱ x details,ȱandȱimplicationsȱofȱtimeframes;ȱandȱ x theȱrisksȱinvolvedȱinȱtheȱacquisition,ȱandȱhowȱtheyȱmightȱbeȱaddressed.ȱ 2.36 Theȱ ANAOȱ examinedȱ aȱ selectionȱ ofȱ assetȱ acquisitionsȱ toȱ identifyȱ ifȱ transactionsȱ wereȱ supportedȱ byȱ sufficientȱ documentation,ȱ includingȱ anȱ explanationȱofȱtheȱreasonsȱforȱtheȱacquisition,ȱanȱevaluationȱofȱalternativesȱtoȱ theȱacquisitionȱofȱnewȱassets,ȱanȱassessmentȱofȱcosts,ȱandȱevidenceȱofȱapproval.ȱ TheȱANAOȱalsoȱassessedȱwhetherȱeachȱacquisitionȱwasȱrecordedȱinȱtheȱassetȱ registerȱinȱaȱtimelyȱmanner.ȱ Audit findings 2.37 Allȱ ofȱ theȱ assetȱ acquisitionsȱ reviewedȱ wereȱ foundȱ toȱ beȱ properlyȱ approvedȱandȱrecordedȱinȱtheȱassetȱregisterȱinȱaȱtimelyȱmanner.ȱȱForȱmostȱofȱ theȱ assetȱ acquisitionsȱ evaluated,ȱ evidenceȱ existedȱ toȱ supportȱ orȱ justifyȱ theȱ decisionsȱmade.ȱȱHowever,ȱinȱtwoȱofȱtheȱauditedȱentities,ȱtheȱANAOȱfoundȱaȱ lackȱofȱconsistencyȱinȱtheȱlevelȱandȱnatureȱofȱdocumentationȱsupportingȱassetȱ acquisitions.ȱ 17 ANAO Audit Report No.57, 2004–05, Purchasing Procedures and Practices, pp. 32–33.
  • 38. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 38 2.38 Aȱ betterȱ practiceȱ identifiedȱ atȱ twoȱ ofȱ theȱ auditedȱ entitiesȱ wasȱ theȱ developmentȱ ofȱ standardȱ formsȱ forȱ documentingȱ assetȱ acquisitionȱ decisions.ȱȱ Inȱoneȱofȱtheseȱentities,ȱclearȱandȱwellȬdefinedȱthresholdsȱwereȱestablishedȱtoȱ assistȱ staffȱ determineȱ theȱ relevantȱ categoryȱ ofȱ acquisition.ȱ ȱ Theȱ ANAOȱ considersȱ thatȱ theȱ useȱ ofȱ standardȱ formsȱ wasȱ effectiveȱ inȱ supportingȱ theȱ developmentȱ ofȱ assetȱ acquisitionȱ requirements,ȱ andȱ inȱ achievingȱ reliable,ȱ transparentȱandȱmoreȱconsistentȱdecisionȬmaking.ȱ 2.39 Forȱeachȱofȱtheȱassetȱacquisitionȱtransactionsȱreviewed,ȱtheȱauditȱfoundȱ thatȱ anȱ analysisȱ ofȱ costsȱ wasȱ undertaken.ȱ ȱ Generally,ȱ lowȬvalueȱ orȱ simpleȱ acquisitionsȱfocussedȱonȱtheȱamountȱofȱtheȱinitialȱoutlay.ȱȱTheȱmoreȱsignificantȱ orȱcomplexȱacquisitionsȱincorporatedȱmoreȱdetailedȱanalysisȱofȱcostsȱacrossȱtheȱ assetȱlifeȬcycle.ȱȱThisȱgenerallyȱincluded:ȱȱ x acquisitionȱ costsȱ –ȱ theȱ initialȱ capitalȱ outlay,ȱ includingȱ anyȱ commissioning,ȱinstallationȱandȱdeliveryȱcosts;ȱandȱ x operationalȱ costsȱ –ȱ costsȱ incurredȱ inȱ theȱ useȱ orȱ operationȱ ofȱ theȱ equipment,ȱ includingȱ theȱ annualȱ depreciationȱ charge,ȱ insurance,ȱ energy,ȱcleaning,ȱscheduledȱmaintenance,ȱrepairsȱandȱspareȱparts.ȱȱ 2.40 Noneȱofȱtheȱentitiesȱincludedȱestimatesȱofȱtheȱproceedsȱfromȱtheȱasset’sȱ eventualȱdisposal,ȱorȱofȱdisposalȱcosts,ȱsuchȱasȱtheȱcostȱofȱtheȱdestructionȱofȱtheȱ item,ȱtheȱremovalȱofȱsensitiveȱorȱclassifiedȱinformation,ȱadvertisingȱandȱstorageȱ costs,ȱinȱtheirȱanalysisȱofȱcosts.ȱȱDisposalȱcostsȱandȱproceedsȱareȱgenerallyȱtheȱ moreȱ difficultȱ amountsȱ toȱ accuratelyȱ estimate,ȱ particularly,ȱ forȱ assetsȱ withȱ longerȱ usefulȱ lives.ȱ ȱ Suchȱ amountsȱ areȱ unlikely,ȱ inȱ manyȱ cases,ȱ toȱ beȱ aȱ significantȱpartȱofȱtheȱtotalȱlifeȬcycleȱcostȱofȱanȱasset,ȱandȱtheirȱomissionȱwasȱ consideredȱunlikelyȱtoȱsignificantlyȱaffectȱtheȱacquisitionȱdecisionsȱreviewed.ȱȱ Nevertheless,ȱanȱestimateȱofȱdisposalȱproceedsȱandȱcostsȱshouldȱbeȱincludedȱinȱ theȱ analysisȱ ofȱ lifeȬcycleȱ costs,ȱ particularlyȱ inȱ thoseȱ casesȱ whereȱ theyȱ areȱ expectedȱtoȱbeȱsignificant,ȱandȱtheyȱcanȱbeȱestimatedȱwithȱaȱreasonableȱdegreeȱ ofȱaccuracy.ȱ Recommendation No.3 2.41 TheȱANAOȱrecommendsȱthatȱentitiesȱadopt,ȱandȱperiodicallyȱreȬassess,ȱ thresholdsȱandȱassociatedȱminimumȱdocumentaryȱrequirementsȱforȱuseȱinȱtheȱ acquisitionȱofȱIPEȱassets.ȱ Entities’ responses 2.42 Eachȱofȱtheȱauditedȱentitiesȱagreedȱwithȱtheȱrecommendation.ȱ
  • 39. Audit findings – Management of Infrastructure, Plant and Equipment Assets ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 39 Operations Introduction 2.43 Theȱactiveȱmanagementȱofȱtheȱoperationȱofȱassetsȱplaysȱaȱkeyȱroleȱinȱ managingȱtheȱcostsȱandȱrisksȱofȱassetȱownershipȱandȱusage.ȱBeingȱinformedȱ aboutȱ theȱ performanceȱ ofȱ assetsȱ isȱ criticalȱ inȱ assessingȱ theirȱ contributionȱ toȱ supportingȱ businessȱ requirements.ȱ Inȱ particular,ȱ theȱ adoptionȱ ofȱ formalȱ operationalȱ planningȱ andȱ managementȱ processesȱ forȱ assetsȱ canȱ provideȱ theȱ followingȱbenefits:ȱȱ x enhancedȱcapacityȱtoȱmanageȱorȱreduceȱassetȱfailures;ȱ x betterȱ managementȱ ofȱ safetyȱ issuesȱ andȱ reductionsȱ inȱ disruptionsȱ toȱ business;ȱ x greaterȱcontrolȱover,ȱandȱabilityȱtoȱreduce,ȱtheȱrisksȱandȱcostsȱassociatedȱ withȱoperatingȱandȱusingȱassets,ȱincludingȱmaintenanceȱcosts;ȱ x improved,ȱandȱmoreȱtimely,ȱinformationȱforȱdecisionȬmaking;ȱandȱ x extendingȱ theȱ useful lifeȱ ofȱ assets,ȱ leadingȱ toȱ moreȱ controlȱ overȱ theȱ needȱfor,ȱandȱtimingȱof,ȱassetȱreplacements.ȱ 2.44 Theȱkeyȱelementsȱinȱmanagingȱtheȱoperationȱofȱassetsȱreviewedȱduringȱ theȱauditȱwere:ȱ x theȱ existenceȱ ofȱ processesȱ forȱ maintainingȱ assetsȱ inȱ goodȱ workingȱ order,ȱ includingȱ theȱ appropriateȱ mixȱ ofȱ preventativeȱ andȱ correctiveȱ maintenanceȱactivity;ȱȱ x whetherȱ operatingȱ standardsȱ orȱ indicators,ȱ settingȱ outȱ theȱ levelȱ ofȱ performanceȱ requiredȱ ofȱ assets,ȱ orȱ groupsȱ ofȱ assetsȱ hadȱ beenȱ establishedȱandȱwereȱregularlyȱmonitored;ȱandȱ x theȱ reportingȱ arrangementsȱ usedȱ toȱ informȱ managersȱ aboutȱ theȱ operationȱofȱassets.ȱ Operations and maintenance arrangements 2.45 DependingȱonȱtheȱsizeȱandȱnatureȱofȱitsȱIPEȱassetȱholdings,ȱeachȱentityȱ shouldȱstriveȱtoȱmaintainȱanȱinformedȱbalanceȱbetweenȱtheȱlevelȱofȱplannedȱ maintenanceȱ activityȱ andȱ theȱ amountȱ ofȱ reactiveȱ orȱ correctiveȱ activity.ȱȱ Generally,ȱ theȱ moreȱ significantȱ theȱ levelȱ ofȱ assetsȱ andȱ theirȱ criticalityȱ inȱ meetingȱ businessȱ objectives,ȱ theȱ greaterȱ amountȱ ofȱ plannedȱ maintenanceȱ activityȱshouldȱbeȱscheduled.ȱ
  • 40. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 40 2.46 Inȱ determiningȱ theȱ mostȱ costȬeffectiveȱ strategyȱ forȱ maintainingȱ IPEȱ assetsȱinȱgoodȱworkingȱorder,ȱeachȱentityȱshouldȱconsiderȱfactorsȱsuchȱasȱthe:ȱ x natureȱandȱtheȱrolesȱofȱitsȱassets;ȱ x likelihood,ȱ andȱ consequences,ȱ ofȱ breakdownsȱ orȱ nonȬperformanceȱ ofȱ assets,ȱincludingȱtheȱimpactsȱofȱdisruptionȱtoȱbusiness;ȱandȱ x availabilityȱ ofȱ sufficientȱ resources,ȱ includingȱ fundingȱ andȱ qualifiedȱ staff.ȱ Audit findings 2.47 Theȱ auditȱ assessedȱ thatȱ threeȱ ofȱ theȱ auditedȱ entitiesȱ hadȱ soundȱ arrangementsȱ forȱ maintainingȱ theirȱ IPEȱ assetsȱ inȱ goodȱ workingȱ order.ȱ Theȱ rangeȱofȱprocessesȱincluded:ȱ x formalȱ maintenanceȱ arrangementsȱ wereȱ inȱ placeȱ forȱ higherȱ valueȱ orȱ essentialȱitemsȱofȱofficeȱequipmentȱassets,ȱsuchȱasȱfacsimileȱmachines,ȱ photocopiersȱandȱmultiȬfunctionȱdevices;ȱ x maintenanceȱ requirements,ȱ includingȱ schedulesȱ ofȱ programmedȱ maintenanceȱwereȱclearlyȱsetȱoutȱinȱleaseȱagreements;ȱȱ x inȬhouseȱ maintenanceȱ schedulesȱ wereȱ basedȱ onȱ manufacturer’sȱ recommendationsȱandȱrecentȱoperationalȱexperience;ȱ x aȱ databaseȱ wasȱ usedȱ toȱ manageȱ correctiveȱ maintenanceȱ activities,ȱ includingȱaȱrecordȱofȱreportedȱfaults,ȱdetailsȱofȱworkȱundertaken,ȱandȱ informationȱonȱtimeȱspentȱonȱmaintenanceȱactivities;ȱȱ x detailedȱschedulesȱofȱpreventativeȱmaintenanceȱactivityȱwereȱinȱplace;ȱ andȱȱ x aȱprogramȱwasȱundertakenȱtoȱupgradeȱorȱrefurbishȱassetsȱandȱrelatedȱ servicesȱ toȱ ensureȱ complianceȱ withȱ documentedȱ maintenanceȱ standards.ȱ 2.48 Inȱ addition,ȱ whereȱ significantȱ elementsȱ ofȱ maintenanceȱ activityȱ wereȱ deliveredȱunderȱcontract,ȱtheȱANAOȱfoundȱthereȱwasȱsufficientȱclarityȱaboutȱ theȱ servicesȱ toȱ beȱ delivered,ȱ andȱ thatȱ theȱ auditedȱ entitiesȱ wereȱ effectivelyȱ managingȱtheseȱarrangements.ȱȱEachȱentityȱhadȱaȱrangeȱofȱstructuredȱprocessesȱ toȱ manageȱ theȱ deliveryȱ ofȱ services,ȱ includingȱ processesȱ toȱ monitorȱ andȱ measureȱtheȱperformanceȱofȱtheȱcontractedȱserviceȱprovider.ȱAmongȱtheȱbetterȱ contractȱmanagementȱpracticesȱreviewedȱduringȱtheȱauditȱwere:ȱ
  • 41. Audit findings – Management of Infrastructure, Plant and Equipment Assets ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 41 x regularȱmeetingsȱbeingȱheldȱwithȱtheȱcontractedȱserviceȱprovidersȱtoȱ discussȱ issuesȱ arisingȱ fromȱ theȱ work,ȱ includingȱ performanceȱ againstȱ performanceȱindicators;ȱ x theȱ provisionȱ (andȱ review)ȱ ofȱ regularȱ reportsȱ detailingȱ theȱ workȱ undertaken;ȱandȱ x theȱ conductȱ ofȱ periodicȱ inspectionsȱ ofȱ theȱ contractor’sȱ systemsȱ andȱ procedures.ȱ Performance information 2.49 Accessȱ toȱ reliableȱ andȱ accurateȱ performanceȱ informationȱ isȱ aȱ keyȱ elementȱ inȱ theȱ effectiveȱ managementȱ ofȱ businessȱ objectives.ȱ ȱ Asȱ wellȱ asȱ providingȱ anȱ informedȱ basisȱ forȱ decisionȬmaking,ȱ theȱ timelyȱ reviewȱ ofȱ performanceȱinformationȱcanȱalsoȱhighlightȱtheȱneedȱforȱpreventativeȱaction.ȱȱȱ 2.50 Entitiesȱshouldȱconsiderȱtheȱuseȱofȱperformanceȱmeasuresȱorȱindicatorsȱ forȱ thoseȱ assetsȱ thatȱ areȱ criticalȱ toȱ meetingȱ theirȱ businessȱ objectivesȱ orȱ requirements.ȱTheȱuseȱofȱperformanceȱindicatorsȱcanȱassistȱinȱthe:ȱȱ x assessmentȱ ofȱ whetherȱ assetsȱ areȱ effectivelyȱ supportingȱ businessȱ requirements;ȱ x evaluationȱ ofȱ theȱ costȬeffectivenessȱ ofȱ operationalȱ andȱ maintenanceȱ strategies;ȱandȱ x measurementȱofȱwhetherȱactualȱcostsȱaccordȱwithȱestimatedȱcostsȱoverȱ theȱassetȱlifeȬcycle.ȱ 2.51 Potentialȱ assetȱ performanceȱ indicatorsȱ includeȱ measuresȱ associatedȱ with:ȱȱ x physicalȱ condition:ȱ assetsȱ maintainedȱ inȱ goodȱ conditionȱ andȱ doȱ notȱ detractȱfromȱaȱsafeȱandȱhealthyȱworkȱenvironment;ȱ x functionality:ȱuserȱsatisfactionȱandȱlevelȱofȱavailability;ȱ x utilisation:ȱinformationȱonȱactualȱusageȱofȱassets,ȱforȱexampleȱhoursȱofȱ operations;ȱandȱȱ x financialȱperformance:ȱcostȱofȱoperatingȱandȱmaintainingȱassets.ȱ 2.52 Eachȱ entityȱ shouldȱ assessȱ theȱ extentȱ toȱ whichȱ formalȱ performanceȱ measurementȱ isȱ likelyȱ toȱ beȱ warrantedȱ inȱ relationȱ toȱ itsȱ IPEȱ assets.ȱ ȱ Inȱ thisȱ regard,ȱ theȱ useȱ ofȱ standardsȱ orȱ performanceȱ indicatorsȱ isȱ generallyȱ moreȱ
  • 42. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 42 appropriateȱinȱthoseȱcircumstancesȱwhereȱIPEȱassetsȱareȱsignificantȱorȱcriticalȱ toȱmeetingȱtheȱentity’sȱbusinessȱobjectives.ȱȱȱ Audit findings 2.53 Noneȱofȱtheȱauditedȱentitiesȱhadȱstructuredȱandȱcoordinatedȱprocessesȱ forȱmonitoringȱtheȱperformanceȱofȱIPEȱassetsȱonȱanȱentityȬwideȱbasis.ȱInȱthreeȱ entities,ȱ individualȱ operationalȱ areasȱ regularlyȱ assessedȱ theȱ performanceȱ ofȱ selectedȱassetsȱagainstȱpredefinedȱstandards.ȱȱInȱeachȱcase,ȱtheseȱassessmentsȱ wereȱ limitedȱ toȱ aȱ specificȱ groupȱ orȱ classȱ ofȱ assets,ȱ andȱ theȱ informationȱ wasȱ obtainedȱfrom,ȱorȱmaintainedȱon,ȱaȱvarietyȱofȱstandȬaloneȱsourcesȱwithinȱtheȱ respectiveȱareas.ȱTheȱassessmentsȱundertakenȱatȱtheseȱentitiesȱincluded:ȱȱ x whetherȱ assetsȱ wereȱ maintainedȱ inȱ aȱ safe,ȱ useableȱ andȱ hygienicȱ condition;ȱ x whetherȱ maintenanceȱ activitiesȱ wereȱ compliantȱ withȱ relevantȱ legislativeȱrequirements;ȱ x levelsȱofȱcomplianceȱwithȱmaintenanceȱstandards;ȱ x theȱcontinuedȱavailabilityȱandȱfunctionalityȱorȱequipment;ȱandȱȱ x anȱassessmentȱofȱtheȱextentȱtoȱwhichȱequipmentȱwasȱutilised.ȱ 2.54 Noneȱofȱtheȱauditedȱentitiesȱemployedȱstandardsȱorȱindicatorsȱcoveringȱ eachȱofȱtheȱdimensionsȱmentionedȱatȱparagraphȱ2.51.ȱȱForȱexample,ȱnoneȱofȱtheȱ entitiesȱ hadȱ developed,ȱ atȱ theȱ timeȱ ofȱ theȱ audit,ȱ standardsȱ addressingȱ theȱ financialȱperformanceȱofȱtheirȱIPEȱassets.ȱAccessȱtoȱinformationȱsuchȱasȱwhetherȱ theȱcostȱofȱrepairsȱandȱmaintenanceȱand/orȱtheȱcostȱofȱoperatingȱanȱassetȱareȱ consistentȱwithȱnormalȱorȱacceptableȱstandardsȱcanȱbeȱanȱimportantȱelementȱinȱ managingȱ theȱ performanceȱ ofȱ assets,ȱ particularlyȱ thoseȱ thatȱ areȱ criticalȱ toȱ meetingȱbusinessȱobjectives.ȱȱSuchȱinformationȱcanȱalsoȱbeȱimportantȱinȱassetȱ acquisitionȱandȱdisposalȱdecisions.ȱ 2.55 Onȱ theirȱ own,ȱ neitherȱ financialȱ norȱ nonȬfinancialȱ performanceȱ informationȱ isȱ generallyȱ sufficientȱ toȱ supportȱ managersȱ meetingȱ theirȱ assetȱ managementȱresponsibilities.ȱȱInȱparticular,ȱundueȱrelianceȱonȱdifferentȱtypesȱ ofȱ performanceȱ informationȱ canȱ adverselyȱ affectȱ decisionȬmaking.ȱ Accordingly,ȱperformanceȱinformationȱshouldȱcompriseȱanȱappropriateȱmixȱofȱ bothȱfinancialȱandȱnonȬfinancialȱmeasures.ȱȱȱ 2.56 Oneȱentityȱincluded,ȱinȱitsȱPortfolioȱBudgetȱStatementsȱ(PBS),ȱaȱnumberȱ ofȱ indicatorsȱ relatingȱ toȱ theȱ performanceȱ ofȱ selectedȱ IPEȱ assets.ȱ ȱ Theseȱ indicatorsȱincludedȱmeasuresȱrelatingȱtoȱtheȱavailabilityȱofȱthisȱequipmentȱandȱ
  • 43. Audit findings – Management of Infrastructure, Plant and Equipment Assets ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 43 alsoȱ achievementsȱ againstȱ assetȱ replacementȱ programs.ȱ ȱ Theȱ ANAOȱ consideredȱthatȱtheȱinclusionȱofȱtheseȱperformanceȱindicatorsȱinȱtheȱPBS,ȱandȱ theȱregularȱmonitoringȱofȱperformanceȱagainstȱthem,ȱwasȱanȱeffectiveȱmeansȱofȱ achievingȱanȱincreasedȱfocusȱonȱtheȱmanagementȱofȱtheseȱassets.ȱȱTheȱANAOȱ considersȱ thisȱ approachȱ toȱ beȱ anȱ exampleȱ ofȱ betterȱ practiceȱ because,ȱ inȱ thisȱ instance,ȱtheȱoperationȱofȱtheseȱassetsȱcontributedȱdirectlyȱandȱsignificantlyȱtoȱ theȱachievementȱofȱtheȱentity’sȱoutputs.ȱȱȱ Management reporting 2.57 Managementȱ reportingȱ shouldȱ provideȱ aȱ levelȱ ofȱ informationȱ thatȱ assistsȱ managersȱ planȱ for,ȱ evaluateȱ andȱ controlȱ theȱ assetsȱ theyȱ utilise.ȱ Inȱ particular,ȱ entitiesȱ shouldȱ haveȱ arrangementsȱ forȱ capturingȱ andȱ reportingȱ informationȱ onȱ theȱ operationȱ ofȱ theirȱ assets,ȱ orȱ onȱ theȱ performanceȱ ofȱ assetȱ managementȱprocesses.ȱ Audit findings 2.58 Inȱ eachȱ ofȱ theȱ auditedȱ entities,ȱ theȱ auditȱ foundȱ thatȱ managersȱ wereȱ regularlyȱ providedȱ withȱ financialȱ activityȱ reportsȱ toȱ assistȱ theirȱ decisionȬ makingȱaboutȱassets.ȱȱForȱtheȱmostȱpart,ȱtheseȱreportsȱfocussedȱonȱdetailsȱofȱ actualȱ capitalȱ expenditure,ȱ includingȱ aȱ comparisonȱ toȱ plannedȱ orȱ budgetedȱ amounts.ȱInȱeachȱcase,ȱtheseȱreportsȱwereȱproducedȱcentrallyȱbyȱtheȱcorporateȱ financeȱareaȱandȱsourcedȱfromȱtheȱentity’sȱFMIS.ȱȱ 2.59 Threeȱ ofȱ theȱ entitiesȱ hadȱ arrangementsȱ inȱ placeȱ forȱ reportingȱ nonȬ financialȱinformationȱrelatingȱtoȱtheȱoperationȱofȱIPEȱassets.ȱȱAsȱwasȱtheȱcaseȱ withȱ theȱ useȱ ofȱ performanceȱ standards,ȱ thisȱ nonȬfinancialȱ informationȱ wasȱ sourcedȱ andȱ managedȱ withinȱ individualȱ operationalȱ areasȱ andȱ relatedȱ toȱ specificȱ groupsȱ orȱ classesȱ ofȱ assets.ȱ ȱ Theȱ assessmentȱ ofȱ performanceȱ againstȱ preȬdeterminedȱ standardsȱ comprisedȱ aȱ keyȱ part,ȱ butȱ notȱ all,ȱ ofȱ theȱ nonȬ financialȱ informationȱ usedȱ inȱ theȱ managementȱ ofȱ IPEȱ assets.ȱ Amongstȱ theȱ auditedȱentities,ȱtheȱauditȱidentifiedȱtheȱuseȱofȱinformationȱrelatingȱto:ȱ x performanceȱagainstȱspecifiedȱstandards,ȱincludingȱtheȱavailabilityȱandȱ functionalityȱofȱequipment;ȱ x detailsȱandȱanalysisȱonȱtheȱnumberȱof,ȱandȱtheȱtimeȱspentȱon,ȱrepairȱandȱ maintenanceȱjobs;ȱ x analysisȱofȱserviceȱfaultsȱandȱserviceȱrequests;ȱ x resultsȱagainstȱplannedȱmaintenanceȱactivities;ȱȱ
  • 44. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 44 x anȱanalysisȱofȱrepairȱactivity,ȱincludingȱanȱassessmentȱofȱtheȱcausesȱofȱ repairsȱandȱanȱanalysisȱofȱtheȱnumberȱandȱpriorityȱofȱworkȱorders;ȱandȱȱ x equipmentȱusageȱdata.ȱ 2.60 Overall,ȱtheȱauditȱconsideredȱthatȱtheȱlevelȱofȱinformationȱprovidedȱtoȱ managers,ȱ togetherȱ withȱ theȱ informationȱ containedȱ inȱ eachȱ entity’sȱ assetȱ register18ȱ was,ȱ forȱ theȱ mostȱ part,ȱ adequateȱ toȱ supportȱ assetȱ managementȱ decisionȬmaking.ȱȱTheȱANAOȱconsidersȱthatȱassetȱdecisionȬmakingȱwouldȱbeȱ enhancedȱ byȱ alsoȱ collectingȱ andȱ reviewingȱ informationȱ addressingȱ theȱ financialȱperformanceȱofȱassets,ȱforȱexample,ȱinformationȱonȱtheȱcostsȱofȱrepairȱ andȱmaintenanceȱactivities.ȱ Recommendation No.4 2.61 Theȱ ANAOȱ recommends,ȱ forȱ thoseȱ IPEȱ assetsȱ thatȱ areȱ criticalȱ toȱ meetingȱtheirȱbusinessȱobjectives,ȱthatȱentities:ȱ x developȱappropriateȱperformanceȱindicators,ȱaddressingȱbothȱfinancialȱ andȱ nonȬfinancialȱ factors,ȱ toȱ measureȱ theȱ efficientȱ andȱ effectiveȱ operationȱofȱthoseȱassets;ȱandȱ x regularlyȱ capture,ȱ monitorȱ andȱ reportȱ toȱ relevantȱ managers,ȱ informationȱonȱachievementsȱagainstȱthoseȱindicators.ȱ Entities’ responses 2.62 Eachȱ ofȱ theȱ auditedȱ entitiesȱ agreedȱ withȱ theȱ recommendation.ȱȱȱ Austradeȱprovidedȱtheȱfollowingȱspecificȱcomment:ȱ Inȱadditionȱtoȱtheȱregularȱmonitoringȱofȱtheȱperformanceȱofȱbusinessȱcriticalȱ assets,ȱ Austradeȱ considersȱ thatȱ appropriateȱ redundancyȱ orȱ backȬupȱ arrangementsȱshouldȱbeȱinȱplaceȱforȱtheseȱassets.ȱȱForȱlessȱsignificantȱassets,ȱ Austradeȱ agreesȱ thatȱ thereȱ shouldȱ beȱ anȱ informedȱ balanceȱ betweenȱ formalȱ monitoringȱmechanismsȱandȱreactiveȱorȱcorrectiveȱactivities.ȱ Disposals Introduction 2.63 Toȱ assistȱ inȱ theȱ identificationȱ ofȱ opportunitiesȱ toȱ betterȱ supportȱ theȱ conductȱofȱbusiness,ȱentitiesȱshouldȱhaveȱstructuredȱprocessesȱforȱidentifyingȱ assetsȱ thatȱ areȱ underȬperforming,ȱ areȱ inefficientȱ toȱ operateȱ orȱ areȱ surplusȱ toȱ 18 As discussed at paragraphs 2.11 to 2.15.
  • 45. Audit findings – Management of Infrastructure, Plant and Equipment Assets ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 45 requirements.ȱ ȱ Identifyingȱ andȱ dealingȱ withȱ theseȱ assetsȱ inȱ aȱ timelyȱ andȱ consideredȱmanner,ȱalsoȱincreasesȱtheȱlikelihoodȱofȱmaximisingȱtheȱproceedsȱ fromȱ disposalȱ activity.ȱ ȱ Onceȱ potentialȱ disposalsȱ haveȱ beenȱ identified,ȱ sufficientȱ justificationȱ shouldȱ beȱ providedȱ toȱ enableȱ disposalȱ transactionsȱ toȱ withstandȱscrutiny,ȱparticularlyȱifȱtheȱdisposalȱinvolvesȱsignificantȱassets.ȱ Disposal planning 2.64 Relevantȱconsiderationsȱinȱtheȱidentificationȱofȱsurplusȱassetsȱincludeȱ theȱfollowing:ȱ x assetsȱmayȱnoȱlongerȱsupportȱtheȱentity’sȱobjectivesȱdueȱtoȱchangesȱinȱ theȱentity’sȱbusiness,ȱincludingȱtheȱtypeȱofȱservicesȱprovided;ȱ x assetsȱhaveȱvaryingȱusefulȱlives;ȱȱ x assetsȱ mayȱ beȱ ableȱ toȱ performȱ asȱ originallyȱ planned,ȱ butȱ haveȱ beenȱ madeȱ redundantȱ orȱ lessȱ effectiveȱ dueȱ toȱ advancesȱ inȱ technologyȱ orȱ changedȱworkȱpractices;ȱandȱ x potentialȱ savingsȱ fromȱ theȱ replacementȱ ofȱ anȱ assetȱ mustȱ beȱ weighedȱ againstȱtheȱcostȱofȱthatȱreplacement.ȱ Audit findings 2.65 Noneȱ ofȱ theȱ auditedȱ entitiesȱ hadȱ regularȱ orȱ structuredȱ planningȱ processesȱspecificallyȱdealingȱwithȱassetȱdisposals.ȱȱRather,ȱtheyȱtendedȱtoȱrelyȱ onȱ aȱ rangeȱ ofȱ adȬhocȱ andȱ lessȱ formalȱ processesȱ toȱ identifyȱ potentialȱ assetȱ disposals.ȱȱTheseȱprocessesȱincluded,ȱforȱexample,ȱobservationsȱmadeȱduringȱ routineȱ operations,ȱ observationsȱ duringȱ theȱ conductȱ andȱ fromȱ theȱ resultsȱ ofȱ stocktakes,ȱandȱinformationȱgainedȱfromȱmaintenanceȱactivities.ȱȱ 2.66 Inȱaddition,ȱpotentialȱdisposalsȱwereȱalsoȱoftenȱidentifiedȱasȱpartȱofȱtheȱ assessmentȱofȱassetȱreplacementȱrequirements.ȱȱInȱthisȱregard,ȱaȱbetterȱpracticeȱ atȱ oneȱ entityȱ wasȱ theȱ review,ȱ asȱ partȱ ofȱ preparationȱ ofȱ theirȱ annualȱ assetȱ acquisitionȱplan,ȱofȱthoseȱassetsȱapproachingȱtheȱendȱofȱtheirȱestimatedȱusefulȱ lives.ȱȱTheseȱreviewsȱwereȱdesignedȱtoȱassessȱtheȱconditionȱofȱtheȱassets,ȱandȱ theirȱabilityȱtoȱcontinueȱtoȱprovideȱanȱappropriateȱlevelȱofȱusefulȱservice.ȱ 2.67 Theȱ monitoringȱ ofȱ assetsȱ thatȱ areȱ at,ȱ orȱ areȱ nearingȱ theȱ endȱ ofȱ theirȱ usefulȱ life,ȱ isȱ aȱ usefulȱ practiceȱ toȱ facilitateȱ theȱ identificationȱ ofȱ potentialȱ disposalsȱinȱaȱtimelyȱmanner.ȱ19ȱȱTheȱwellȬtimedȱdisposalȱofȱanȱassetȱcanȱreduceȱ theȱcostsȱofȱholdingȱolderȱassetsȱandȱalsoȱmaximiseȱdisposalȱproceeds.ȱȱ 19 ANAO Audit Report No.8, 2001–02, Disposal of Infrastructure, Plant and Equipment, p. 51.
  • 46. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 46 Disposal activity 2.68 Theȱauditȱassessed,ȱforȱaȱselectionȱofȱdisposalȱtransactions,ȱwhetherȱtheȱ disposalȱwasȱsupportedȱbyȱsufficientȱdocumentation,ȱincluding:ȱ x explanationȱofȱtheȱreasonsȱforȱtheȱdisposal;ȱ x identificationȱ ofȱ theȱ mostȱ appropriateȱ disposalȱ method,ȱ includingȱ considerationȱofȱissuesȱaroundȱtiming,ȱsecurityȱandȱachievingȱtheȱbestȱ return;ȱandȱ x evidenceȱofȱapproval.ȱ Audit findings 2.69 Allȱ theȱ disposalȱ transactionsȱ reviewedȱ wereȱ properlyȱ approved,ȱ however,ȱ evidenceȱ wasȱ notȱ alwaysȱ availableȱ toȱ justifyȱ theȱ disposal.ȱ ȱ Inȱ particular,ȱinȱtwoȱentitiesȱtheȱANAOȱfoundȱaȱlackȱofȱconsistencyȱinȱtheȱlevelȱofȱ documentationȱsupportingȱdisposals.ȱȱȱ 2.70 Threeȱ ofȱ theȱ auditedȱ entitiesȱ hadȱ developedȱ standardȱ formsȱ toȱ guideȱ staffȱ throughȱ theȱ disposalȱ ofȱ anȱ asset.ȱ ȱ Inȱ twoȱ ofȱ theseȱ entities,ȱ theȱ ANAOȱ assessedȱ theȱ formsȱ asȱ sufficientȱ andȱ usefulȱ toȱ supportȱ decisionȬmaking,ȱ includingȱprovidingȱjustificationsȱorȱexplanationsȱforȱtheȱdisposalȱtransaction.ȱ Theȱ ANAOȱ considersȱ thatȱ theȱ existenceȱ ofȱ theseȱ standardȱ forms,ȱ andȱ associatedȱ guidelines,ȱ contributedȱ toȱ moreȱ consistencyȱ inȱ disposalȱ decisionȬ making.ȱ 2.71 Inȱ threeȱ ofȱ theȱ auditedȱ entitiesȱ alternativesȱ toȱ theȱ disposalȱ ofȱ assetsȱ wereȱ activelyȱ consideredȱ duringȱ theȱ decisionȬmakingȱ process,ȱ including,ȱ transferringȱ assetsȱ toȱ differentȱ areasȱ ofȱ theȱ entity,ȱ adaptingȱ assetsȱ toȱ meetȱ anotherȱfunction,ȱorȱretainingȱsurplusȱequipmentȱasȱbackȬupȱequipmentȱorȱforȱ spareȱparts.ȱ 2.72 Aȱbetterȱpracticeȱidentifiedȱatȱoneȱentityȱwasȱtheȱrequirementȱforȱstaffȱ members,ȱpriorȱtoȱdisposingȱofȱanȱasset,ȱtoȱmakeȱanȱassessmentȱofȱwhetherȱtheȱ assetȱcouldȱbeȱusedȱbyȱanotherȱareaȱofȱtheȱentity.ȱInȱtheseȱcases,ȱtheȱavailabilityȱ ofȱ theȱ equipmentȱ wasȱ notifiedȱ toȱ otherȱ areasȱ ofȱ theȱ entityȱ viaȱ anȱ electronicȱ bulletinȱboard.ȱȱȱȱ
  • 47. Audit findings – Management of Infrastructure, Plant and Equipment Assets ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 47 Recommendation No.5 2.73 ToȱassistȱinȱtheȱidentificationȱofȱIPEȱassetsȱthatȱmayȱrequireȱdisposal,ȱ theȱANAOȱrecommendsȱthatȱentitiesȱregularlyȱmonitorȱthoseȱassetsȱnearingȱtheȱ endȱofȱtheirȱestimatedȱusefulȱlives.20ȱ Entities’ responses 2.74 Eachȱofȱtheȱauditedȱentitiesȱagreedȱwithȱtheȱrecommendation.ȱ Ian McPhee Canberra ACT Auditor-General 3 May 2006 ȱ . 20 A similar recommendation was made in ANAO Audit Report No.8, 2001–02.
  • 48. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 48
  • 49. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 49 Appendices
  • 50. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 50
  • 51. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 51 Appendix 1: Audit criteria Component Audit criteria Control environment Comprehensive, clear and readily accessible policies and procedures, covering each stage of the asset life-cycle have been developed. A formal and secure record of asset information, providing accurate, reliable and timely information on the entity’s asset holdings. Asset planning A structured process is in place to develop an asset management strategy/plan, which is integrated with the entity’s strategic or business planning processes, and aligns the entity’s asset portfolio with their business requirements. Acquisitions A structured process is in place for the identification and approval of organisation’s acquisition needs. Acquisition activity accords with acquisition plan(s), and is adequately justified, approved and recorded in the asset information management system in a timely manner. Operations Processes are in place for maintaining assets in good working order, including the appropriate mix of preventative and corrective maintenance activities. Operating standards or indicators setting out the level of performance required of assets, or groups of assets have been established and are regularly monitored. Reporting arrangements are in place to regularly inform managers about the operation of assets. Disposals A structured process is in place for the identification and approval of surplus, obsolete and under-performing assets for disposal. Disposal activity accords with disposal plan(s), and is adequately justified, approved and recorded in the asset information management system in a timely manner.
  • 52. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 52 Appendix 2: Content of asset policy and procedural documentation Theȱcontentȱofȱanȱentity’sȱassetȱpolicyȱandȱproceduralȱdocumentationȱshouldȱreflectȱtheȱ volumeȱandȱnatureȱofȱitsȱassetȬbase.ȱȱHowever,ȱtheȱfollowingȱtableȱprovidesȱanȱoutlineȱ ofȱtheȱcontentȱlikelyȱtoȱbeȱrelevantȱtoȱmanyȱAustralianȱGovernmentȱentities.ȱ Phase of Asset life-cycle Section Planning Definition of asset management Role of assets Phases of the asset life-cycle Understanding life-cycle costing Accountability and roles and responsibilities Acquisitions Analysis of alternatives, including non-asset solutions Acquisition planning Life-cycle costing Purchasing, including the requirements of the Commonwealth Procurement Guidelines Receipt and acceptance of assets Establishing ownership and control Operations Establishing performance indicators Operation and maintenance planning Monitoring use and performance Preventative and corrective maintenance Tracking assets, including transfers and loans Safeguarding assets Stocktaking assets Disposals Identification of surplus, obsolete and under-performing assets Developing replacement strategies Evaluation of disposal alternatives Write-off of damaged, lost or stolen assets Accounting Definition of assets, including the criterion of control Capitalisation thresholds Portable and attractive assets Revaluations Recognition criteria Depreciation, including asset life-cycle or useful life Treatment of repairs and maintenance Recording acquisitions/disposals Source: ANAO.
  • 53. ANAO Audit Report No.37 2005–06 The Management of Infrastructure, Plant and Equipment Assets 53 Appendix 3: Entitiesʼ comments on the proposed audit report Thisȱappendixȱcontainsȱanyȱgeneralȱcommentsȱreceivedȱonȱtheȱauditȱreportȱthatȱareȱnotȱ shownȱinȱtheȱbodyȱofȱtheȱreport.ȱȱȱ Australian Film, Television and Radio School AFTRSȱacknowledgesȱthatȱtheȱreportȱcapturesȱtheȱmanyȱpositive,ȱasȱwellȱasȱtheȱ smallȱ numberȱ ofȱ notȬsoȬpositive,ȱ pointsȱ thatȱ wereȱ identifiedȱ inȱ itsȱ auditȱ andȱ subsequentlyȱ expressedȱ inȱ theȱ managementȱ letterȱ toȱ AFTRS.ȱ ȱ AFTRSȱ canȱ confirmȱ thatȱ isȱ hasȱ alreadyȱ addressedȱ someȱ theȱ issuesȱ thatȱ wereȱ flaggedȱ asȱ needingȱ attention,ȱ andȱ willȱ resolveȱ theȱ fewȱ thatȱ remainȱ outstandingȱ inȱ anȱ expedientȱmanner.ȱ Australian Trade Commission Austradeȱagreesȱwithȱallȱtheȱreport’sȱrecommendations.ȱȱAustradeȱintendsȱtoȱ reviewȱ itsȱ policiesȱ andȱ proceduresȱ toȱ ensureȱ thatȱ allȱ recommendationsȱ areȱ incorporatedȱintoȱthemȱasȱappropriate,ȱandȱvaluesȱtheȱANAO’sȱcontributionȱinȱ thisȱregard.ȱ Department of Immigration and Multicultural Affairs TheȱDepartmentȱofȱImmigrationȱandȱMulticulturalȱAffairsȱ(DIMA)ȱwelcomedȱ theȱchanceȱtoȱparticipateȱinȱthisȱauditȱandȱappreciatedȱtheȱfeedbackȱprovidedȱ inȱourȱindividualȱmanagementȱletter.ȱȱDIMAȱagreesȱwithȱtheȱbetterȱpracticesȱ outlinedȱinȱrecommendationsȱoneȱtoȱfive,ȱandȱwillȱendeavourȱtoȱincorporateȱ theseȱpracticesȱintoȱoperationsȱandȱpolicyȱwhereȱrelevant.ȱ