Part 1: Introduction

1.1
Our Office's theme for 2012/13 has been: Our future needs – is the public sector ready? During the year, we completed projects that look at different aspects of the public sector to consider whether we are ready for the future.

1.2
This paper provides an overview of the assets used to deliver services to the public. Its purpose is to provide a high-level view of the management of public assets, their condition and value, maintenance and renewals, and what information is reported to decision-makers about these matters. By doing this, we hope to initiate discussion by provoking relevant questions about the management of public assets rather than provide a technical assessment of asset management practices.

Methodology and scope of this paper

1.3
For the purposes of this paper, we focused on physical assets (property, plant, and equipment assets and infrastructure assets). that are "significant" delivering public services. We use the term "assets" to mean both physical assets and classes of assets that provide services to the public.

1.4
We collected information about more than 340 large public entities that each hold more than $2 million of assets (see paragraphs 2.2-2.4). We chose this threshold to focus on major assets (rather than covering all assets held by the public sector) and to manage the effect of our information requests for our auditors and public entities.

1.5
In our recently published paper Insuring public assets, we identified a total of $225 billion of assets, based on the information collected from about 400 public entities with assets greater than $100,000 ($100,000 being chosen as a threshold of value that could be difficult for an entity to replace in the event of its loss or damage, and for which we therefore might reasonably expect insurance cover to have been considered). That total is different to the total of $214 billion identified for this paper, which is based on a smaller number of public entities.

1.6
Our auditors provided information on three main aspects of asset management:

• The assets held and the condition of those assets. Asset management starts with identifying and quantifying the assets and gathering information about their age and condition.
• Whether the assets are being maintained. Managing assets for their full life cycle requires good integrated planning, good underlying data about the assets and the services that they enable, and good asset management systems. Assets must be maintained if they are to continue delivering the services intended from them. Deferring asset maintenance for a long time can result in more breakdowns and disruption of services, substandard services, and, in the end, failure of services.
• The information used in decision-making. To help good decision-making, relevant asset information needs to be available at the right time, for the right people, about matters such as the condition of assets, investment, and levels of service that assets are required to provide.

1.7
The information we got covered technology hardware assets but not software assets. In general, there is no reason why asset management principles should not apply to management of software assets as well as hardware assets.

Structure of this paper

1.8
The structure of this paper reflects the areas of asset management practices that we asked our auditors to provide information about. We also set out examples of some challenges that entities face in managing assets effectively.

1.9
Part 1 describes the methodology and scope of this paper. It sets out public sector asset management in a wider context and discusses the importance of managing assets today and for the future.

1.10
Part 2 describes service delivery assets, sets out the profile of public assets, and discusses planning to deliver services.

1.11
Part 3 discusses what we found out about the condition of assets and the importance of keeping condition information up to date.

1.12
Part 4 discusses the maintenance and renewal of those assets.

1.13
Part 5 discusses asset condition information and reporting to decision-makers.

Support for asset management in the public sector

1.14
Asset management, which is essential in effective business planning, is about providing desired services by managing assets in the most cost-effective way, for today's and future generations.

1.15
Assets are often expensive and require continued attention to ensure that they are managed well. Public entities are responsible for ensuring that their assets are available and properly maintained so that they can continue to provide services. Public entities need robust information about their assets and future asset needs so that they can achieve this objective.

1.16
There is emerging concern internationally about "infrastructure gaps" or "infrastructure maintenance deficits". The identification of such "gaps" is becoming more widespread, with some governments having gone as far as to legislate the value of the gap to be eliminated. An infrastructure gap occurs when assets are worn down over time as the result of decreases in spending (deferring maintenance) and increases in the cost of maintenance or renewal works.

1.17
Internationally, New Zealand has a good reputation for managing assets because of our public sector financial management and reporting arrangements and the work of groups such as New Zealand Asset Management Support (NAMS). NAMS was formed to set up and promote infrastructure asset management practices, policies, and systems. NAMS has prepared five manuals, which many local government entities use.¹

1.18
Asset management principles were first developed for property assets and, in general, those principles apply to most types of assets. NAMS has prepared more sophisticated guidance for other public assets, such as water supply and roads. This guidance recognises that many public assets have long lives and assessing their condition regularly can be difficult, particularly as many are underground.

1.19
The National Infrastructure Unit (NIU) within the Treasury is responsible for taking a national overview of infrastructure priorities – providing cross-government co-ordination, planning and expertise.² The priorities and strategic direction for Infrastructure are set out in the National Infrastructure Plan, released in July 2011. Through the Plan, the Government is looking to deliver two outcomes – better utilisation of existing infrastructure and better allocation of new investment. Both outcomes work together and require effective asset management planning and practice that strongly links the management and performance of infrastructure assets to the services they provide.

1.20
A focus for the NIU is on developing a stronger evidence base of how infrastructure assets are performing and their fit for purpose to deliver on the Government's priorities. A key programme of work targeted at the "Social infrastructure sector" is the Capital Asset Management (CAM) programme, designed to bring a particular focus to the way government agencies manage the portfolio of assets in their financial statements, and new capital investments, in line with the Government's fiscal and service delivery objectives. The CAM regime operates in two related cycles – one oriented to managing existing asset portfolios and the other concerned with the value for money of the next tranche of capital investment proposals.

1.21
NAMS and the NIU are important in promoting an integrated approach to asset management in the public sector. Along with these groups, we have continued to encourage good management of public assets throughout the range of our audit work since the introduction of accrual accounting in the late 1980s. Our work spans the results of annual audits, audits of local authorities' long-term plans (since 2006), and performance audits of asset management both across sectors and in individual public entities.

1: NAMS manuals include the International Infrastructure Management Manual, Developing Levels of Service and Performance Measures Guidelines, Optimised Decision Making Guidelines, Infrastructure Asset Valuation and Depreciation Guidelines, and the NAMS Property Manual. All are available at the NAMS website, www.nams.org.nz.

2: See the National Infrastructure Unit website at www.infrastructure.govt.nz.