Public sector entities in Queensland – both state and local governments – collectively manage approximately $475 billion in infrastructure assets to service the needs of the community. This asset base is expected to grow substantially in coming years, with Queensland experiencing a significant increase in its population from interstate migration and international immigration. Queensland will also require infrastructure development to meet anticipated demand for its biggest sporting event to date – the Brisbane 2032 Olympic and Paralympic Games.
Entities need a comprehensive asset management strategy and an asset management plan to ensure that they maintain and service their assets to meet community needs. An asset management strategy outlines the high-level, strategic approach an entity will take to manage its assets in the long term, such as what asset to acquire and when, and how to manage demand for services. Whereas an asset management plan contains the actions that the entity needs to take to deliver its asset management strategy.
Given the importance of asset management to the Queensland public sector, we will be delivering a series of blogs on this topic over the coming months. In this blog, we look at where entities can start with improving their asset management.
What is fundamental to good asset management?
Asset data refers to information an entity requires to identify and record an asset in its financial and operational systems. Complete and accurate asset data is fundamental in establishing a good asset management plan. It enables better planning and sound investment decisions, to ensure assets maximise services for the community while minimising the total cost of owning them.
While having good data on your assets might seem obvious, this has been a challenge for public sector entities in Queensland for many years. In the local government sector, this issue has been a recurring theme. Every year, several councils recognise assets that were not previously recorded in their financial systems (‘found assets’), even though these assets have existed for several years.
Isolated instances of found assets are not a cause of concern. However, repeated instances indicate a fundamental problem with an entity’s internal controls. (Internal controls are the people, systems, and processes that ensure an entity can achieve its objectives, prepare reliable financial reports, and comply with applicable laws.)
Too often, we see that entities think their asset data is not complete and accurate and do not put in place processes to address this. Suspecting your entity’s asset data is not 100 per cent complete and accurate is no excuse for not starting to use it and incrementally refining it as you go. After all, evidence-based decision-making beats ‘gut feel’ every time. The comprehensive valuation exercise – which occurs every 3 to 5 years – can be a good checkpoint for entities to start updating their asset data for completeness and accuracy. Entities will then have to establish strong processes to ensure that they maintain their asset data periodically so it is complete and accurate.
Why and how are found assets identified?
When entities’ finance teams perform their comprehensive revaluation process, valuers often identify ‘found assets’. The primary reason this happens year after year is because of entities’ poor asset recording practices.
Entities generally record their assets in their financial system (a general ledger, which records the costs, useful life, and so on) and geographic information system (GIS – which captures, stores, and manages information that engineers need to maintain, upgrade, and replace assets, including geographical information).
One common issue we see is that information entered in the GIS is not always recorded in the financial system. The engineering team usually updates the GIS after detailed plans are obtained, and provides this information to the finance team so it can account for the asset in the general ledger. When this information is delayed or not communicated, finance teams may not record assets in financial statements in a timely manner or at all. Engineering and finance teams need to work together to ensure that assets are recorded in the GIS and finance system as soon as possible and both teams need to be cognisant of year-end reporting deadlines.
Some public sector entities also receive what they call contributed assets. These are infrastructure assets that a developer gives an entity (usually a council) in return for fees and charges the developer owes the entity. A council’s town planning team is responsible for monitoring the development’s progress – once complete, the council receives the developer contributed assets. The engineering team then inspects the assets to ensure they meet the council’s quality standards. After engineering has signed off on them, the finance team can record the assets in the council’s financial records. When communication breaks down between the town planning, engineering, and/or finance teams, these assets may not be recorded in a timely manner or at all – leading to future instances of ‘found assets’.
What could entities do to improve completeness and accuracy of the asset data?
When entities use multiple systems to record assets, it’s important that the data in all these systems is maintained and up to date.
As a part of their regular maintenance program, entities should have their engineers confirm a sample of assets in the GIS system by physically sighting them.
Entities should also regularly reconcile asset data in the GIS and the financial system. Where entities maintain a different system for their asset registers, they should perform a 3-way reconciliation between GIS, asset register, and financial system. Entities should complete this reconciliation at least annually, and more frequently where they acquire assets regularly.
Engineering and finance teams (and where relevant town planning teams) need to work collaboratively to ensure that information is collected and disseminated across the entity in a timely manner.
Where to from here?
In summary, entities should undertake a thorough reconciliation between their GIS and financial records to ensure completeness and accuracy of their asset data, and enhance communication between their teams to improve their asset recording processes.
In our next blog, we will discuss taking a strategic approach to asset management. This will provide entities with insights into some better practices for asset management.
- Education 2021 (Report 19: 2021–22)
- Education: 2018–19 results of financial audits (Report 15: 2019–20)
- Education: 2017–18 results of financial audits (Report 19: 2018–19)
- Local government 2021 (Report 15: 2021–22)
- Local government 2020 (Report 17: 2020–21)
- Local government entities: 2018–19 results of financial audits (Report 13: 2019–20)
- Local government entities: 2017–18 results of financial audits (Report 18: 2018–19)
- Efficient and effective use of high value medical equipment (Report 10: 2016–17)
- Forecasting long-term sustainability of local government (Report 2: 2016–17)
- Maintenance of public schools (Report 11: 2014–15)
Prior blog posts that mention asset management: