A Guide to Completing an Auditable Special Schedule 7

Transcription

1 Part 1 A Guide to Completing an Auditable Special Schedule 7 PART 1 - Key Concepts PART 2 - Guide and example) Allen Mapstone JRA, Jeff Roorda JRA Peer Reviewers - John Comrie, Dr Penny Burns Developed and tested with Engineering and Finance Professionals across NSW Special Schedule 7 Methodology Part 1 DRAFT. V jroorda@jr.net.au 1

2 Part 1 Introduction Modern society is dependent on infrastructure. Asset and Risk Management Plans communicate the trade off between risk, service levels and cost. As infrastructure ages, growth slows and risks increase, asset and risk management plans enable evidence based decision making by Government. The question posed by the annual reporting requirement for NSW Local Government, known as Special Schedule 7 (SS7), is deceptively simple. How much is needed to bring infrastructure to a satisfactory standard and maintain that standard? The question assumes Councils have adequately resourced their charter under section 8 of the NSW Local Government Act, to effectively account for and manage these assets and to have regard to the long-term and cumulative effects of its decisions. Councils are reasonably assumed to have service level scenarios based on forward looking financial, asset management JRA s experience is that most Councils have asset and risk management plans supported by improving evidence under the NSW Integrated Planning and Reporting framework. JRA was commissioned by a number of Councils to provide assistance with the preparation of SS7 and decided to make this guide available to others at no cost since it represents the cumulative ideas of many, but not of al. This guide is the result of a series of workshops with Local Government Professionals completed in 2014 and builds on the core reference documents of the 2013 IPR Manual, the International Infrastructure Management Manual and Australian Infrastructure Financial Management Guidelines by Institute of Public Works Engineering Australasia. The contribution and assistance by many local government and audit professionals in the preparation of this guide is gratefully acknowledged.. This guide does not at this time represent the views of the NSW Office of Local Government or IPWEA NSW. JRA welcomes any comments and will update this guide as needed subject to peer review and make the latest version of the guide available on request at no cost. Special Schedule 7 Methodology Part 1 DRAFT. V jroorda@jr.net.au 2

3 JRA Part 1 The Annual Report The Annual Report is one of the key accountability mechanisms between a council and its community. As such, it should be written and presented in a way that is appropriate for each council s community. IPR Manual Section March 2013 Councils are required to report on the condition of the public works (including public buildings, public roads; and water, sewerage and drainage works) under the control of the council as at the end of that year, together with: An estimate (at current values) of the amount of money required to bring the works up to a satisfactory standard, and An estimate (at current values) of the annual expense of maintaining the works at that standard, and The council s program of maintenance for that year in respect of the works. The report on the condition of public works is also included in the financial reports and is known as Special Schedule 7. Councils must complete this Schedule each year. IPR Manual Section March 2013 The Asset Management Strategy must identify assets that are critical to the council s operations and outline the risk management strategies for these assets. IPR Manual Section March 2013 The Asset Management Plan/s must identify asset service standards. IPR Manual Section March 2013 A council s Asset Management Plan should incorporate an assessment of the risks associated with the assets involved and the identification of strategies for the management of those risks. The strategies should be consistent with the overall risk policy of council. The International and Australian Standard AS/NZS/ISO/31000:2009 Risk management Principles and guideline provides a useful guide. IPR Manual IPR Manual Section March 2013 Special Schedule 7 Methodology Part 1 DRAFT. V jroorda@jr.net.au 3

4 Part 1 Key Concepts 1. The report on the condition of public works (Special Schedule 7) should flow directly from the Delivery Program, which should define performance indicators for both existing and proposed levels of service. These performance measures can be used to quantify the upgrade costs (or degree of over-servicing) between existing and target service levels. (Note 1) 2. The determination of satisfactory target service levels involves an informed tradeoff using the Long Term Financial Plan and Asset Management Plan 10 year scenarios for revenues, risks and service levels. This approach is consistently identified in the IPR Manual and expanded in complementary resources such the IPWEA Level of Service and Community Engagement Practice Note 8. (Note 2) 3. Cost to bring to assets to satisfactory should be determined by asset and risk management plans. This guide recommends that the cost to bring to satisfactory should be the total unfunded cost to renew all high residual risk assets in the current risk register. 4. Special 7 is auditable by checking for alignment between special schedule 7 and asset and risk management plans. The risk register establishes a consistent and evidence based cost to bring to satisfactory and connects to good governance practice of transparent reporting of risk through appropriate governance processes such as an audit committee. 5. Asset Risks include operational, technical, financial, legal, social and environmental risks using the ISO framework. Supporting resources are available and this methodology is consistently applied internationally. (Note 3) Note 1 NSW Office of Local Government, IPR Manual Section 6.4 P133 Note 2 - IPWEA Practice Note 8 Level of Service and Community Engagement, Section 2, P2 Note 3 IPWEA NAMSPLUS Asset and Risk Management Plan Templates Special Schedule 7 Methodology Part 1 DRAFT. V jroorda@jr.net.au 4

5 Part 2 A Guide to Completing an Auditable Special Schedule 7 PART 2 - Guide and Example Allen Mapstone JRA, Jeff Roorda JRA Peer Reviewers - John Comrie, Dr Penny Burns Developed and tested with Engineering and Finance Professionals across NSW Special Schedule 7 Methodology Part 1 DRAFT. V jroorda@jr.net.au 5

6 Part 2 About Part 2 This guide was commissioned by a by a number of regional groups of local government professionals and managers in NSW and has developed and been tested over a 6 month period with finance, engineering and audit professionals. The Asset and Risk Management Plans are the essential source of Special Schedule 7 (SS7) reporting. Auditing special schedule 7 should be based on alignment between SS7 and the asset and risk management plans, and in particular the risk register and planned risk treatments and costs to maintain satisfactory service levels. Part 2 of the guide uses an example using the IPWEA NAMSPLUS system of developing and maintaining asset management plans. Whilst this approach is simple, economic and will provide consistent results, Councils may choose alternative systems and still comply with the intent of Part 1. This guide has been based on a series of consultative workshops with senior Engineers and Accountants throughout Australia and USA and has been peer reviewed by John Comrie (JAC) and Dr Penny Burns and Jeremy McAnally JRA Allen Mapstone JRA Special Schedule 7 Methodology Part 1 DRAFT. V jroorda@jr.net.au 6

7 Part 2 Key Concept Cost to Bring to Satisfactory (BTS) BTS is the sum of Modern Equivalent Renewal Cost of high residual risk assets not financed in current or next year s budget. This is based on assets due for renewal but not funded. Cost to bring to satisfactory is the most efficient modern equivalent capital treatment to keep the asset to service. Audited by link to Asset Management Plan and Risk Register Deferring renewal may result in the modern equivalent renewal cost increasing and will impact future BTS reporting. BTS analysis must be carried out for each material asset component. Network averages should not be used to determine BTS. The connection to risk registers reinforces the importance of independent Audit Committees to report service risks to Council. This enables the essential separation of aspirational but unaffordable service levels with essential service levels. Aspirational service levels that the community does not want to pay for and do not present high residual risks are not infrastructure backlog or financial sustainability risks. If service levels are declining in accordance with an adopted, agreed and communicated asset management strategy this is not backlog, nor a financial sustainability risk provided risks are managed and communicated. Resource Material Integrated Planning and Reporting Manual for local government in NSW MARCH Premier & Cabinet - Division of Local Government International Infrastructure Management Manual (IIMM). Institute of Public Works Engineering Australasia (IPWEA) Nov 2011 IPWEA NAMPLUS Advanced Risk Register Template IPWEA NAMSPLUS Asset Management Plan Template Special Schedule 7 Methodology Part 1 DRAFT. V jroorda@jr.net.au 7

8 Part 2 Key Concept Determining What is Satisfactory Satisfactory service levels (SSL) are determined by Council taking into account community needs and aspirations in the resourcing strategy scenarios and detailed in Asset Management Plans (IPR Manual P16) SSL take into account Asset Management Plan risk assessment of critical assets and how risks will be managed (P87) SSL align with Asset Management Plan actions required to provide a defined level of service in the most cost-effective manner. (P88) Asset Management Plans should have scenarios that integrate with Long Term Financial Plans that show Long-term cash flow predictions for asset operation, maintenance and renewals based on local knowledge of assets and options for meeting current or improved levels of service and for serving the projected population. (P87) SSL can be self audited or externally audited by checking alignment with the risk register showing assets with high residual risk and modern equivalent renewal costs necessary to manage residual risk to acceptable levels. This provides a base level of BTS. Council may have scenarios with aspirational targets in the Asset Management Plan, but decide in consultation with the community that these aspirational targets are not affordable. Unaffordable aspirational targets are not backlog, provided risk is managed and communicated. Resource Material Integrated Planning and Reporting Manual for local government in NSW MARCH Premier & Cabinet - Division of Local Government Special Schedule 7 Methodology Part 1 DRAFT. V jroorda@jr.net.au 8

9 Part 2 Key Concept Required Annual Maintenance Cost of unfunded maintenance needed to manage increased risk resulting from deferred renewal. The risk register should include an option to discontinue the service as an alternative means of managing risk. Audited by link to Risk Register Assets with high residual risk due for Renewal but not funded. Cost to maintain at satisfactory is unfinanced maintenance treatment option if renewal is not funded. Risks will increase the longer renewal deferred and the risk register should be reviewed annually. Resource Material Integrated Planning and Reporting Manual for local government in NSW MARCH Premier & Cabinet - Division of Local Government International Infrastructure Management Manual (IIMM). Institute of Public Works Engineering Australasia (IPWEA) Nov 2011 IPWEA NAMPLUS Advanced Risk Register Template IPWEA NAMSPLUS Asset Management Plan Template Special Schedule 7 Methodology Part 1 DRAFT. V jroorda@jr.net.au 9

10 Part 2 Example This example uses IPWEA NAMSPLUS3. All NSW Councils have had access to NAMSPLUS and training programs were run by JRA for IPWEA over a 2 year period under the capacity building program with assistance of Commonwealth Government National Asset Management Framework. This shows all assets due for renewal from the Asset Register. It should take into account service levels, risk, condition, and modern equivalent renewal cost the component level. This is often considered as BTS or backlog (NAMSPLUS Asset Management Plan Figure 7) Resource Material IPWEA NAMSPLUS Asset Management Plan Template Special Schedule 7 Methodology Part 1 DRAFT. V jroorda@jr.net.au 10

11 Part 2 Example (NAMSPLUS Asset Management Plan Figure 7) This shows all assets due for renewal from the Asset Register. It should take into account service levels, risk, condition, and modern equivalent renewal cost the component level. Resource Material IPWEA NAMSPLUS Asset Management Plan Template Special Schedule 7 Methodology Part 1 DRAFT. V jroorda@jr.net.au 11

12 Step 1 Check Unfunded Renewal (NAMSPLUS Report 6 -Appendix B) shows renewal program required in the current year. This report is based on modern equivalent renewal cost. NAMSPLUS.3 Unfunded Renewal = Report 6 Total for the current year Funded renewal from Long Term Financial Plan NAMSPLUS Form3 Funded Renewal NAMSPLUS Renewal Required Figure 7 & Report 4 - Table Special Schedule 7 Methodology Part 1 DRAFT. V jroorda@jr.net.au 12

13 Step 2 Identify High Residual Risk (NAMSPLUS Risk Register Template and Risk Section in AMP) NAMSPLUS.3 What proportion of unfunded renewal has high residual risk? Risk Types Injury Service Interruption Reputation Environment Financial Asset Register - Total Assets with zero remaining life in ,409,875Total Due from Asset Register 15,342,875Asset Life too short - needs to be re assessed 17,000High Risk - unfunded and due in 2014 Low Risk - deferring renewal will not have material risk or service level 50,000consequence Special Schedule 7 Methodology Part 1 DRAFT. V jroorda@jr.net.au 13

14 Step 3 Bring to Satisfactory (BTS) (NAMSPLUS Risk Register Template and Risk Section in AMP) NAMSPLUS.3 BTS = Total of unfunded renewal with high residual risk from Risk Register (Risk Treatment Options A - $17,000 or B $5,000 depending on post treatment residual risk) Risk Types Injury Service Interruption Reputation Environment Financial Special Schedule 7 Methodology Part 1 DRAFT. V jroorda@jr.net.au 14

15 Step 4 Maintain at Satisfactory (MAS) (NAMSPLUS Risk Register Template and Risk Section in AMP) NAMSPLUS.3 Risk Types Injury Service Interruption Reputation Environment Financial MAS = Additional maintenance resulting from deferred renewal (option C) Special Schedule 7 Methodology Part 1 DRAFT. V jroorda@jr.net.au 15

16 16 Step 5 Align AMP and SS7 (NAMSPLUS Form 3 Step 5.1 Add up the modern equivalent component renewal cost and put it in the SS7 cost to bring to satisfactory Step 5.2 Option C in a NAMSPLUS risk register is additional maintenance - add that up and add to current budget and put in SS7 maintenance column. Step 5.3 Review and update AMP using S2 form 2A if steps 1-3 show a problem with the register (lives too long or short, cost too high or low) AMP RMP and SS7 are now in alignment and auditable. Special Schedule 7 Methodology Part 1 DRAFT. V jroorda@jr.net.au 16