Asset Management Strategy


Asset Management Strategy

Asset management is the combination of economic and technical management applied to physical assets over their life cycle to sustain a defined level of service. Some of the benefits achieved through effective asset management are as follows: -

 Extended life of existing assets through optimal maintenance and renewal practice, thereby deferring major capital expenditure,

 Identifying assets at risk and rehabilitating or renewing them at a lower cost before they need total replacement,

 Improving productivity and management through the use of computerised maintenance and resource management and other operating systems.

Asset Management’ is a term used for the organisation of maintenance, rehabilitation and replacement of physical assets. One of the major issues for responsible asset management is to ensure that Council is taking the most appropriate action with its assets throughout their life cycle. In simple terms asset management is based on: -

 Knowing what assets you own, where they are located and what condition they are in.
 Knowing how these assets should be maintained rehabilitated and replaced.
 Knowing how and when to optimise life cycle costs.
 Knowing cost of purchasing and maintaining assets.

Therefore, it is necessary for Council to develop an asset inventory of the City to ensure all assets are effectively managed for the benefit of the community. The asset inventory will be the first step in developing and implementing a comprehensive asset management program. Which would detail long term improvement and maintenance programs for all roads, carparks, parks, drains, drainage systems, buildings, equipment and other infrastructure within the City.

Comprehensive asset management is a necessity for local government in terms of meeting legislative requirements and for the development of prudent financial planning and accounting in line with Australian Accounting Standard 27 (AAS27) and for efficient works planning.

Strategy Needs
Whittlesea City Council, like other organisations and authorities, is responsible for an extensive range of assets. It is faced with the ongoing need of what resources and funds need to be provided to ensure these assets continue to provide the required services to its community.
Reductions in ability to raise funds, increased pressure from the community for improved service delivery at less cost and legislation requiring the identification and depreciation of infrastructure assets, means that Council must critically assess the way in which it manages its important assets. It is not a matter of spending more money; it is recognition that a “rational and realistic” strategic focus is imperative to achieve maximum value from its infrastructure assets for the funds spent. The introduction of AAS27, which requires Council to account for and depreciate infrastructure assets, has resulted in a better understanding of infrastructure assets and the levels of funding required

The vision for asset management within the City Of Whittlesea is:-

‘To create, operate, maintain, renew or replace and dispose of
the Council’s assets in the most cost effective manner to
give the required level of service for present and
future generations of residents and ratepayers’

The aim of this strategy is to review all available asset management planning information, accountabilities, responsibilities and develop overall objectives and principles for good asset management practices to be adopted by Whittlesea City Council in managing the life cycle costs of its assets.
• Define an asset
• Define roles & responsibilities of each business unit in the management of Assets
• Define a co-ordinated management of assets approach to include
• Financial maintenance
• Condition of assets
• Location of assets
• Reporting on individual assets
• Reporting on groups of assets
• Replacement/refurbishment program

Asset Management
Asset Management can be defined as the process of guiding the acquisition, use and disposal of assets to maximise their service delivery potential, while managing the related risks and costs over their entire life. It is an iterative process, encompassing the planning, development, acquisition, disposal, operations, maintenance and monitoring of assets during their life cycle.

Asset Definitions
AAS27 defines an asset as a store of future service potential controlled by the entity as a result of a past transaction or other past events. However a technical definition that may be more appropriate is in the National Asset Management Manual (NAMM) published by the Institute of Municipal Engineering Australia “a structure or item of plant or equipment that provides service potential or future economic benefits”.

Department of Infrastructure Study
In 1997 the Department of Infrastructure undertook a study of the financial capacity of Councils to fund long-term investment in infrastructure. The study focused on determining the renewal profile for existing assets. The preliminary findings indicated in the draft report were that Victorian Councils have approximately ten years lead time before significantly increased spending will be required. This conclusion was based on information submitted by the Council’s at that time. Recent work has placed doubts on the quality of the data provided and consequently a final report has not been produced. The implementation of an asset management system will assist Council with the quality of its data and enable Council to determine a more accurate profile of its long term needs with respect to its assets.

A best practice approach recommended in the draft report was that Councils in Victoria recognise and acknowledge:

• That asset management is a corporate responsibility
• Need for comprehensive asset management planning
• Need for community involvement in setting standards
• Need for performance measurement of the asset management process
• Need for good analysis of existing data
• Need for rigour in financial assessment of competing asset solutions
• Need for focusing attention and resources on the relatively immediate problems

The principal objectives of asset management are to plan, create or acquire, operate, maintain, rehabilitate, replace and dispose of assets in a most cost effective and safe manner. Whilst providing a level of service that meets the needs of the present and future communities within the City of Whittlesea. Failure to make provision for the long term effects, when creating new assets or not properly maintaining existing assets, will leave future Whittlesea communities with large financial liabilities. To achieve good asset management the following issues need to be addressed.

• Identify appropriate asset categories

• Assign accountability for assets

• Integrate asset management plans with the corporate planning process

• Prepare long-term financial plans for renewal, upgrade and growth of assets

• Develop an asset classification and accurate inventory of all assets

• Set equitable and cost-effective service standards, measuring performance and benchmarking against best practice.

• Develop asset management plans for the different asset categories.

The NAMM states - 'In the private sector, Corporations Law clearly defines asset management under the custodial duties of Directors. Directors … are held responsible through their annual reporting and financial systems.
In the current, changing business environment of local government, councillors or members of Boards of Management need to address such custodial responsibility. The executive staff need to be able to answer questions asked of them and put forward effective asset management strategies.'

Diligence is critical for asset owners, as asset failures resulting in environmental or property damage or personal injury are no longer defensible in a court of law on the basis of ignorance. Hence appropriate commitments should be made and adequate resources allocated to this corporate responsibility. Whilst the Chief Executive Officer has overall responsibility for all Council functions, it is normal practice in most organisations to appoint an officer to ensure that this custodial responsibility of the Councillors is being met. This officer for the City of Whittlesea is the Asset Management Co-ordinator. The Asset Co-ordinator should assign responsibilities to individual business units to ensure that a uniform, top-down approach is adopted to achieve a quality asset management program.

The responsibilities of the Asset Management Co-ordinator will include

• Recommending corporate standards and policies with respect to asset management programs and budget submissions

• Monitoring and co-ordinating the overall asset management program

• Co-ordinating the registration of the acquisition and disposal of all assets including buildings, fleet, furniture and lands via all Council business units

• Co-ordinating and compiling long-term capital works budgets.

The NAMM states - 'Life cycle asset management involves technical, financial, economic, social and political inputs. It is therefore a function of organisations that needs to be co-ordinated.’ Therefore a wider organisational approach is needed. It is proposed that the Asset Co-ordinator will negotiate and co-ordinate asset management with key staff members throughout the organisation.

Asset Management Team
An Asset Management Team should be developed under the auspices of the Asset Management Co-ordinator. This team should meet on a regular basis and have an overview and monitoring role with respect to the development, implementation and maintenance of the Asset Management Strategy. It should have a long- term, holistic view and responsibilities that include:
• Ensuring that Council's asset management program is developed and implemented in a consistent, logical and structured manner.
• Raising awareness throughout the Council on the benefits of adopting a formal approach to asset management.
• Identifying needs and implementing appropriate asset management systems for efficient and effective monitoring and reporting on assets.
• Facilitating the process of acquiring or disposing of assets.
• Identifying resources required in developing, implementing and maintaining an Asset Management System.
• Set benchmark for the condition of Council's assets and monitor their performance.

The role and composition of this team should evolve and be continuously reviewed to meet the changing needs of the Council. The composition of the team will be determined by the Asset Co-ordinator and the asset management program. The role of this team will change as asset management programs are implemented.

Asset Classification
The Authority computer system implemented throughout the organisation includes an Asset Register Module. It was designed as a financial asset system that met the requirements of AAS27. The following details the relationships between the Authority module and asset classifications as provided by the Asset Management paper presented to CMT by Matt Glen. The classification system is being progressively implemented in the Asset Register. This example utilises data from the asset register to show the classification and hierarchy of assets.

Asset – Specific description of asset. Description is to be unique and strong enough to stand alone without further descriptions required to represent the asset.
e.g. Lalor Park Pre-School

Function – Business Unit who uses and/or is responsible for the Asset.
e.g. Community Services

Activity – What the asset is primarily used for.
e.g. Family Services

Sub Activity – Further field if required; what the asset is used for.
e.g. Children’s Services

Type – Asset Type as per AAS27 requirements.
e.g. Building

Sub Type 1 – What the asset actually is in relation to its type.
e.g. Community Building

Sub Type 2 –Field relating to what the asset is.
e.g. Pre-School Centre

Sub Type 3 - Further field if required, relating to what the asset is.

Australian Accounting Standard AAS27 - "Financial Reporting by Local Governments" was introduced in July 1991 and set out the implementation methodology for general purpose financial reporting by municipalities. In essence, the standard requires local government controlled assets, including infrastructure assets, to be recognised in the financial reports of Council. AAS27 is not solely about asset management, however, these guidelines concentrate on an "asset management policy" for the organisation.

AAS27 applies to reporting periods ending on or after 1 July, 1992. The Standard allowed for transitional provisions to apply until the beginning of the first reporting period ending on or after 1 July 1996. Therefore Council was required to fully comply with relevant Australian Accounting Standards for the preparation of the annual statements for the financial year ended 30 June, 1997. It must be emphasised that the transitional provisions of AAS 27 have expired and Council faces significant implications for non-compliance and or variation to previously recognised non-current assets.

It is important to emphasise that AAS 27 requires Council to comply with all relevant Australian Accounting Standards. The application of Australian Accounting Standards is mandatory on the organisation and non-compliance will result in an audit qualification. The Local Government Act also requires Councils to comply with relevant Australian Accounting Standards as well as appropriate legislation and regulation.

As already mentioned, one of the most significant issues arising from the changes is the recognition, valuation and depreciation of all non-current assets. Asset management, therefore forms an integral part of Australian Accounting Standards and this document is designed to provide the City of Whittlesea with the opportunity to responsibly manage its assets and resources more efficiently and effectively. The purpose of this document is to frame an asset management policy, and give explanation to the methods and policies adopted for asset management and valuation by the City of Whittlesea.

AAS27 requires Councils to:
• Recognise all assets acquired by whatever means on/after 1 October, 1992.

• Value all assets acquired using an appropriate basis.

• Record a charge for depreciation of all Property Plant and Equipment assets in the Operating Statement for the organisation.

• Include in the Statement of Financial Position all non current assets acquired from whatever source.

Therefore, the requirements are:
• A detailed identification of all assets of the Council to an appropriate component level.

• Determination of a relevant valuation basis of each asset and its associated components.

• An assessment of the current condition of the asset that can produce:

Local Government (Reporting and Accounting) Regulations 1992 have been designed to facilitate the implementation of the Local Government Act 1989. The Regulation cited states that provisions under AAS27 must be followed. An asset should only be recognised when:

• it is probable that the service potential or future economic benefits embodied in the asset will eventuate; and

• the asset possesses a cost or other value that can be measured reliably.

Control by the Council
The Council controls an asset where it has the capacity to benefit from the asset in the pursuit of its objectives and to deny or regulate the access of others to that benefit. Many assets, whilst not owned by Council, are controlled by it. All infrastructure assets such as monuments, roads, parks, bridges, furniture and equipment are Council assets for which it is generally not difficult to determine whether control exists. Land is an asset where control can be more difficult to determine, and this is particularly the situation with Crown Land that is vested in a statutory authority or a State Government Department. The Council may not have the capacity to control the service potential or future economic benefits of the land.

Where land is vested in a Council or the responsibilities normally associated with ownership (for example, maintenance of the land, responsibility for restricting access, etc) rest with the Council, the Council has effective control over the economic benefits of the land. Council should make proper and appropriate inquiries in relation to where crown land is recognised and valued. Current direction is that Crown land irrespective of “control” should not be recognised in the accounts of Council.

As a general rule, where the assets are owned by other entities the assets should not be recorded in the asset registers of Council as they will be recorded as assets of the other entity. Examples are roads controlled by VicRoads and Street lighting which are clearly not assets of Council, even though funding is provided the other entity for the maintenance of these assets.

Reliable Measurement
The measurement of cost or other value must be without bias and without undue error. Most valuations are subject to some risk of not being a faithful representation of what it purports to be. This is not due to bias but due to the inherent difficulties in identifying the economic phenomena to be measured. This risk of error is offset in part by disclosure of the details and the basis of valuation.

Asset Classifications
All assets which are owned or controlled by the municipality and which are described by the parameters established below should be taken into account. In all cases the principal factor for determination of asset classification should be the primary purpose or predominant use. In this way confusion is minimised where an asset provides more than one service or benefit to different objectives. If primary use changes, the asset can be reclassified. The City of Whittlesea has used the following asset categories in the Statement of Financial Position at 30 June, 2000:-
• Land
• Buildings
• Plant and Equipment
• Furniture and Equipment (includes artworks)
• Infrastructure

Within each category there are various components. It must be noted that each category can and will have more than one valuation basis, as is required by Australian Accounting Standards.

Council must be very specific in the manner in which its recognises assets particularly in the case of large projects, such as a construction of a community centre. Council must ensure that all components of the project are accounted for in a correct and professional manner. The project must be accounted for in the first instance in relation to the appropriate asset category as listed in the Annual Statement of Account. It is essential that Council ensure that projects are budgeted for by these components, and expenditure should also be recorded in the general ledger on the same basis.

In accordance with the requirements of Australian Accounting Standard AAS 27 “Financial Reporting by Local Government”, assets controlled by Council, with the exception of land under roads, have been recognised in the Statement of Financial Position as at 30 June 1997. Land under roads which had previously been recognised as an assets has been written out in the 1995/96 reporting period in accordance with Office of Local Government Accounting Guideline No. 1, Land under Roads, dated 21 February, 1996, as it currently cannot be reliably measured. Under AAS 27 Land under roads will be recognised by 30 June 2000.

Capital and Maintenance Expenditure:
Recording, valuation and depreciation of assets is based on the assumption that in normal circumstances assets are fully maintained and properly managed. The use of an asset over its economic life usually depends on an effective maintenance program. Generally, delay or cancellation of maintenance programs will reduce the economic life or an asset or reduce its operating efficiency.

These issues raised the question as to whether expenditure on an asset is a repair or a replacement of an asset. The Victorian Treasury has prepared an accounting policy statement titled "Recording and Reporting of Non-Current Physical Assets" (APS 4) which refers briefly to the issue of classification of maintenance expenditure. Specifically APS 4 states: “A repair or maintenance of an asset is a period cost rather than "capital" expenditure. This type of expenditure has the effect of sustaining the service potential of an asset as opposed to expenditure directed towards changing or replacing the service potential inherent in the asset”

Capital expenditure on an asset is when funds:
• extends the asset's economic life: and/or

• improves the asset's revenue earning capacity, often taking advantage of more modern technology; and/or

• adds attributes, which were not previously part of the asset.

• improves the condition beyond it’s originally assessed standard of performance or capacity.

Aggregation of Assets
Assets are to be recorded as separately identifiable items or units. All items of plant, equipment and property are made up of components so an assessment must be made to determine the appropriate extent of aggregation. This assessment is based on materiality, function and useful life, regulation or restriction.

Care should always be taken to ensure the proper and appropriate recording of asset purchases is made. It is an accepted methodology to combine the purchase of various units to form one unit and therefore will be recorded on the asset registers as one asset unit.

For example:
• personal computer system - includes the visual display unit, keyboard, the hard disk and the mouse. Computer software and associated development costs are treated as an expense when incurred during the reporting period, but will be recorded on the asset register for asset management purposes and not for accounting purposes.
• desk and chairs
• major plant items that are modified for specific purposes e.g. local laws vehicle.

The applicability of grouping or aggregation will depend upon materiality, nature of asset and information needs. It will and should be mandatory to disaggregate assets which have materially different useful lives e.g. consideration of road pavement (10 to 20 years) as a separate asset to road substructure (80 to 100 years).

Recording minor assets
Some assets, which are portable or sensitive in nature, need to be recorded in some form to ensure adequate control and accountability is maintained.
For example:
• Mobile telephones
• Portable printers
• Portable office equipment
• Minor items of “equipment” purchased for specific programs – e.g. Family Day Care

Council is required by various funding agreements with government agencies to maintain asset registers as a condition of the funding agreement. In other instances the funding body have stipulate that Council account for “assets” under a certain threshold. It is extremely important that Council protects the funding for programs by ensuring compliance with these signed agreements. It is probable that Council should classify these items as restricted assets.

Valuation Basis
The City of Whittlesea must as a part of the Asset Management process make determinations in relation to the following:
• basis of valuation,

• unit of measure, and

• frequency of valuation (Local Government Accounting regulations now require all assets to be revalued biennially)

• for fixed assets in each of the categories and sub-categories of the fixed assets register.
Newly acquired non-current assets are recorded at cost and depreciated over their useful life. Cost includes all expenditure incurred in getting the asset ready and available for use. The cost of property, plant and equipment constructed by Council includes the cost of materials and direct labour and an appropriate proportion of overheads.

Current Replacement Cost
The approach to determining current replacement cost will depend on market availability of a similar asset. Market cost is estimated by reference to the cost of a similar asset available in an accessible market. Reproduction cost is estimated by reference to the cost per unit of service potential or reproducing or replicating the asset. It applies where a similar asset in terms of both scale and technology would replace the asset being valued. Reference to the cost per unit of service potential of a similar but more technically advanced asset estimate replacement cost.

Frequency of Revaluation
In determining when a revaluation should occur consideration must be made of each category of non-current assets and the related administrative costs and the end use of the revaluation. The Local Government Accounting regulations require the revaluation of all assets biennially. Regular revaluation may still be required not just to comply with AAS27 requirements. Revaluation of assets may be needed for insurance purposes outside of this two year cycle. As a general rule the following revaluation cycle would be appropriate: -

• Land and Buildings should be revalued at the time of the normal municipal revaluation.

• Infrastructure assets should be revalued on a regular basis to ensure that the Technical Services database does not vary significantly from the financial information as disclosed in the Statement of Financial Position. As the Technical Services Database is being continuously update there will from year to year be a greater difference from the financial data. This difference should eventually be alleviated by the introduction of the Authority Asset Register. The Asset register will need to be updated continuously under the co-ordination of the Asset Management Co-ordinator. It should be noted that the values of infrastructure assets cannot be varied from year to year as this would be deemed to be a revaluation and Council has been advised by the Auditor General that this is not appropriate or acceptable basis.

• Plant and Equipment should continue to be recorded at cost.

• Furniture and Equipment should continue to be recorded at cost. It would not be appropriate to revalue the asset classes of Plant and equipment & Furniture and equipment.

• Artworks should be revalued on a regular basis, and because of the nature of the class of asset and the cost of a revaluation by an independent expert, this revaluation should be conducted once every ten years.

Recording of Assets
Newly installed and removal of assets will be documented and incorporated into the asset register as works are carried out. Transportation, Technical Services and the Operations Departments are presently responsible for initiating most of the new asset installation works. These business units record all new works, defining the work undertaken, the location of the works, any relevant information about the asset being installed and forward this information to the Assets Engineer. The Assets Engineer is responsible for incorporating the new infrastructure assets into the Asset Register maintained by the Technical Services Department (ParaMap). This process will need to be reviewed by the Asset Co-ordinator to ensure that the data is collected and managed through Council’s corporate Asset Register database. The update of asset data into the Authority asset register has been progressing in the areas of buildings and parks.

Items of property, plant and equipment, including buildings are depreciated or amortised over their estimated useful life or period of lease on the basis of the straight-line method. All assets are categorised into six groups, and each asset is different from other assets, therefore all assets will be valued and depreciated separately. All assets will have different estimated useful lives and therefore different depreciation rates.

Assets are first depreciated or amortised in the month following acquisition and presented at the end of the year’s financial period following acquisition. In the case of constructed assets, the month the asset is first completed and ready to use the year the asset is first completed and ready for use. Classes of lower value assets may be depreciated for half a year in each of the years of acquisition and disposal. The process of recording and depreciating assets will need further assessment by the Asset Management Co-ordinator.

Action Plan
The development of strategies to meet the vision and objectives will require a commitment from individual business units. The Asset Management Co-ordinator will develop a strategy of implementation that will incorporate the co-operation of all business units to achieve uniform asset management principles throughout the organisation

Development of an operational definition of an asset to ensure all business units are able to understand and comply with the requirements of recording assets. • A physical entity which provides service potential of future economic benefit and has an economic life of greater than one year and a value of $1000 or more
• Assess the Asset Register database to ascertain if all Council owned assets comply with definition Responsibility
Asset Co-ordinator & Financial Accountant

Tracking of Purchasing & Disposal of Assets • Develop an assets acquisition and disposal manual to ensure all assets are recorded in the asset register.
• Assess existing procedures and develop a co-ordinated action plan Responsibility
Manager of Finance, Manager of Valuations Manager Engineering Operations & Asset Co-ordinator.
Data collection and maintenance of assets • Develop a data maintenance system and implementation program to allow easy electronic updating of asset maintenance and capital improvements
• Assess existing data capture requirements and future needs in asset maintenance Responsibility
Manager Engineering Operations, Parks & Gardens, Technical Services Information Technology & Asset Co-ordinator
Data collection of contracted asset maintenance and construction of new assets • Where specifications require a Service Provider to maintain or construct an asset the specifications to include for the Service Provider to provide maintenance and capital improvement works to Council in a defined format
• Assess all tender documents and make appropriate changes. Responsibility
Tendering Unit and individual Business Units that supervise external service providers under the auspices of the Asset Co-ordinator
Identify tools/systems required to manage assets • Develop and assess the need for an Asset Management System.
• Assess the existing business processes used in managing assets. Develop and refine with Business Units a system to manage assets. Responsibility
Asset Co-ordinator in conjunction with each individual business unit
Identify procurement procedures to ensure assets that purchased or leased are included on the Asset Register • Assess procurement procedures and asset registration procedures. Responsibility
Asset Co-ordinator, Manager of Finance, Purchasing Officer and individual Business Unit Managers
Identify non financial assets needing to be included on the Asset Register • Develop a procedure at ascertain, collect and record all non-financial assets.
• Assess the asset register to ascertain the existence of non-financial assets. Responsibility
Asset Co-ordinator and individual Business Unit Managers

Ensure recorded procedures for the inputting of assets into the Asset register • Develop written procedures for all aspects of recording, inputting and removing assets from the asset register. Responsibility
Asset Co-ordinator with assistance from individual Business Unit Managers
Ensure fleet management, furniture and equipment is recorded on the asset register. • Develop procedures to ensure acquisitions and disposal of these assets are recorded on the asset register
• Develop a strategy to audit existing database knowledge.
• Develop a strategy to audit all of Council’s furniture and equipment including areas such as Family Day Care, Community Halls
• Develop a strategy to maintain the audited database. Responsibility
Asset Co-ordinator with assistance from individual Business Unit Managers
Ensure all minor furniture equipment is recorded and audited to ensure compliance and control. • Develop a system of recording and maintaining newly acquired and disposal of minor equipment including such items as computer software. Responsibility
Asset Co-ordinator with assistance from individual Business Unit Managers and the purchasing officer.
Ensure all road infrastructure assets are included in the asset register and the GIS • Develop a hierarchy structure of road assets
• Create a link between the property module and the asset register
• Audit the road infrastructure assets to ensure all assets are included in the asset register.
• Develop a system for the ongoing update of data on to the Asset register and GIS
• Develop a system to ensure the communication between relevant departments (Technical Services, Finance, Parks & Gardens & Valuations) in the update of disposal and acquisition of new road assets Responsibility
Asset Co-ordinator with assistance from individual Business Unit Managers

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