Asset Management, Financial Sustainability and Service Planning
Auditor General’s report across all states continue to focus on sustainability issues surrounding Long Term Financial Planning and Asset Management.
CT Management Group is working with a number of clients to assist in responding to the Auditor General’s comments and recommendations. Priorities continue to be on Asset Management and Valuations, Financial Sustainability and Service Planning.
In Victoria, the passage of the Local Government Bill 2019 through the Legislative Assembly will see debate continue in the Legislative Council on the 4 February 2020. The proposed legislation will see a significant workload placed on councils to review strategies, plans and policies from 2020 onwards in achieving the aims of the proposed new legislation.
A key focus for councils is contained in the following:
ASSET MANAGEMENT AND VALUATIONS
VAGO’s review of infrastructure, property, plant and equipment — and the revaluation process within the sector, continue to identify issues mainly relating to:
- Fair value assessments of many asset classes not being undertaken with sufficient regularity.
- Inconsistencies across the sector in the application and appropriate documentation of the condition assessment process for infrastructure assets, including:
- A lack of key metrics and indicators in determining the condition of infrastructure assets and the resulting impact on fair value and remaining asset useful life.
- Inadequate regularity of condition assessments, with some infrastructure asset classes never having had a condition assessment performed.
- Poor communication between asset management teams and finance staff, and a lack of sufficient oversight of the condition assessment process by management.
- Individual asset components within an asset class measured inconsistently with the entire asset class, which is not in accordance with Australian Accounting Standards.
- Delays in the timing of capitalisation for completed capital works in progress projects—resulting in understatement of depreciation expenses.
- A lack of robust and sufficiently regular impairment assessments over all infrastructure, property, plant and equipment asset classes.
- Ongoing found assets, albeit there has been a significant improvement across the sector in 2018–19 (see Section 2.6).
The Queensland Auditor General did identify deficiencies relating to asset valuations, including incorrect and incomplete data in asset registers, no monitoring of the useful lives of assets, and a lack of formal approval prior to starting a valuation.
CT Management has key experts in the valuation and asset management areas ready to assist Councils meet their statutory obligations and management objectives in this area.
We can assist councils prioritise improving their asset management frameworks, policies, and processes to ensure infrastructure, property, plant and equipment balances disclosed in the financial statements are complete and accurate. This is particularly important given the management of these assets represents a key function of the council for providing services to the community.
LOCAL GOVERNMENT BILL 2019
The Local Government Bill 2019 was introduced into Parliament on 13 November 2019 and aims to introduce:
“a modern framework empowering councils to improve on service delivery, focus on deliberative engagement and long-term financial management to support communities.”
CT Management is preparing a detailed implementation program and looks forward to sharing this with councils in the new year.
Our initial assessment indicates council will need to dedicate significant resources to implementing the Act provisions and regional collaboration on matters of policy and knowledge sharing will facilitate a smoother transition.
FINANCIAL SUSTAINABILITY
VAGO’s profitability indicators assess the ability of councils to fund their operations from their surpluses.
Consistent surpluses ensure the continued operation of services and satisfaction of community needs. While impacted by the introduction of rate capping and an increase in waste and recycling costs, the sector as a whole continues to generate a surplus from operations.
Metropolitan councils continue to report consistently strong adjusted underlying results. In contrast, regional, large and small councils experience more fluctuation in their results — with 33 per cent of these councils experiencing a negative result for 2018‒19 (31 per cent in 2017–18).
The worrying trend though is the increasing number of councils entering the high to medium risk area when the long-term sustainability of councils is analysed.
We see over 40 Councils in this place currently, which is a significant increase over the prior two financial years.
In Queensland the 2016/17 forecasting long term sustainability was critical of councils ability to project reliable forecasts, failure to adhere to Asset Management Plans and the maintenance of complete and accurate condition data.
SERVICE PLANNING – TOWARDS FINANCIAL SUSTAINABILITY
Councils spend approximately 75 per cent of their expenditure providing services to their communities. An understanding of the range of services, levels of service and long-term cost of service delivery is an essential component of any consultation program to discuss future service offerings with the community.
Service priorities and future levels of service will be the key to a financial sustainable council, living within its means and remaining relevant and financially sound.
Many of our current council client’s long term financial position will need adjusting to remain financially sustainable in the longer term.
We note the Queensland Audit Office recently reported in the management of the sustainability of local government services and has expressed concern over long term viability of services and asset renewals.
CT Management is ready to assist councils in this vital area of service planning.
Best regards,
Michael Courtney
Managing Director
CT Management Group
For more information on how CT Management Group can assist your council, please contact Merv Hair on 1300 500 932 or complete the form below.