Part 7: Asset management in the LTCCPs

Matters arising from the 2009-19 long-term council community plans.

7.1
In this Part, we consider aspects of how local authorities plan for and manage their assets. We discuss:

Summary of our findings

7.2
In recent years, we have seen local authorities improve their asset management practice and the related information that they hold about their assets.

7.3
Generally, local authorities had enough underlying information to support the forecasts and disclosures about assets in their 2009-19 LTCCPs. However, a significant number of local authorities' asset management plans were not complete, did not reflect other available information and management practice, and did not support the information included in the LTCCPs.

7.4
Also, a significant number of local authorities needed to better define their levels of service. In our view, local authorities need to focus on improvement planning to continuously enhance how they manage their assets.

The importance of good quality asset management

7.5
Local authorities manage infrastructure and other community assets to deliver services to their communities.

7.6
For many local authorities, particularly territorial local authorities, infrastructure assets are their largest investment. This means that the cost of acquiring, maintaining, and renewing these assets, which ratepayers and other funders must ultimately pay for, is significant.

7.7
To meet their responsibilities for decision-making and accountability under the Act, all local authorities need to effectively plan, manage, and be accountable for their stewardship of assets and the services those assets deliver.

7.8
Some of these services are critical to a community's quality of life. In our 2010 report, Local authorities: Planning to meet the forecast demand for drinking water, we outlined our findings from a performance audit that considered how well eight local authorities were prepared to meet the likely future demand for drinking water. To meet this demand and deliver water at a level of service that meets community expectations requires local authorities to successfully integrate technical engineering aspects of asset management with non-technical user-focused considerations.

7.9
Many of our reports to Parliament have raised issues about how local authorities manage their assets. We have raised these issues in the context of accepted good practice for asset management in the local government sector. These issues include:

  • the necessity of good quality information about assets to underpin reliable plans and estimates and good decision-making; and
  • the importance of asset management plans being based on levels of service established through meaningful consultation with ratepayers or users of services.

7.10
The importance of asset management is also recognised in the Government's National Infrastructure Plan.57

The significance of asset management for the LTCCP

7.11
To manage their assets effectively, local authorities need management practices that align with industry-recognised standards and a reliable base of underlying information about their assets. Only then can local authorities be confident about the asset-related decisions that they make, and communities can have confidence in the plans that their local authority puts before them. Without good management practices and reliable information, communities can not be confident that their local authority will continue to deliver the services they require and use their assets sustainably.

7.12
The Act recognises that having reliable information about assets is an important basis for the LTCCP. Section 94(1)(b) of the Act states that the auditor of a local authority's LTCCP must report on "the quality of the information and assumptions underlying the forecast information provided in the plan". The Act (in particular, clause 2(1)(d) of Schedule 10 of the Act) also requires local authorities to disclose critical information about their assets, for which adequate underlying information is necessary.

7.13
This means that the forecasts included in the LTCCP should be consistent with the available and adequate underlying information about a local authority's assets.

7.14
Current legislative revisions are proposing to change the nature and extent of the asset-related information that local authorities need to disclose. However, local

authorities will still need the information they are currently required to disclose to manage their assets effectively, regardless of any new external reporting disclosure requirements.

Our audit work on local authorities' asset management

7.15
Much of our audit work on local authorities' asset management focuses on a local authority's approach to asset management practice and the quality of the resulting asset management plans.

7.16
As part of our LTCCP audits, we assessed asset-related information that was used in preparing the LTCCP. We expected that:

  • the quality of a local authority's underlying information for the LTCCP is adequate;
  • the information included in the LTCCP is consistent with the underlying information; and
  • the disclosures about assets are made in keeping with the requirements of the Act.

Asset management in the 2009-19 LTCCPs

Asset management and our audit opinions

7.17
There was a significant reduction in the number of non-standard audit opinions relating to asset management. We issued just one non-standard audit opinion that was related to asset management (compared with five for the 2006-16 LTCCPs).

7.18
We concluded that Tararua District Council's 2009-19 LTCCP was not fit for purpose58 because the information underlying its asset management plans was inadequate to support the forecast information included in the LTCCP. This also meant that we were unable to affirm that the LTCCP complied with generally accepted accounting practice or that it achieved the purpose set out in the Act.

7.19
The non-standard opinion we issued was for both the Statement of Proposal and the final LTCCP. This reflects that local authorities often cannot readily address the issues that we identify with their core underlying information, which cause us to issue these qualifications, in the short term.

Other comments

7.20
Generally, local authorities had enough underlying information to support the forecasts and disclosures included in their LTCCPs. This is reflected in the fact that

we issued only one non-standard audit opinion related to asset management for the 2009-19 LTCCPs. However, we did note where some improvements need to be made.

7.21
Our audits of the 2009-19 LTCCPs showed that, again, a significant number of local authorities' asset management plans were not complete, did not reflect other available information and management practice, and did not fully support the information included in the LTCCPs. In these situations, the local authorities had to supplement the information that was included in the asset management plans to fully support their LTCCPs.

7.22
In some cases, the appointed auditor had to complete additional work to confirm that the information supporting the LTCCP was adequate. Some of the additional information relied on local knowledge held informally by individual asset managers. This situation creates a number of risks for local authorities and reinforces the importance of having complete asset management plans.

7.23
Although we are pleased that the LTCCPs were supported by reasonable information, it is not good for local authorities to have asset-related plans that do not follow good practice and are inconsistent with information that is available to the local authority.

7.24
We also recommended to a significant number of local authorities that they should better define their levels of service. In some instances, the local authority selected levels of service from their asset management plans that were described only in technical terms, which made it difficult for the lay reader to understand them. In our view, descriptions of the levels of service in the LTCCP should appropriately blend technical and non-technical aspects. They also need to be easy to understand because the levels of service form the basis for meaningful engagement with the community.

7.25
When preparing the 2006-16 LTCCPs, anticipating and addressing a growth environment was a significant challenge for some local authorities. This was less so in the recessionary environment when local authorities were preparing their 2009-19 LTCCPs – affordability was a more significant issue.

7.26
Regardless of whether the economic environment is expansive or recessionary, a local authority's services are delivered by assets that have a long life. Local authorities have particular challenges in presenting to their communities clear trade-offs, choices, and decisions between funding and service levels, both for the short term and the long term.

Preparing for 2012

7.27
In our view, local authorities need to focus on improvement planning to continuously enhance how they manage their assets. Asset management remains critical for local authorities.

7.28
We hope that Audit New Zealand's 2010 report on asset management59 stimulates a focus on valuable examples of asset management practice, which reflect what all local authorities can achieve. This practice, and the information on which it is based, are pivotal to effective long-term planning.

57: National Infrastructure Plan, March 2010, pages 11, 20, and 26 (available at www.infrastructure.govt.nz).

58: See section 93(6) of the Act.

59: Audit New Zealand (2010), Asset management for public entities: Learning from local government examples, Wellington.

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