Auditor-General's overview

All of us will have contact with the services of a district health board (DHB) at some time in our lives, many of us at numerous times throughout our lives. We depend on health services and expect them to be available to us when and where we need them.

Physical assets (such as hospital buildings and clinical equipment) are integral to the health services DHBs deliver. Sound management of DHBs' physical assets is critical to New Zealand's future, as well as to each of us individually. In 2015, DHBs had $5.7 billion invested in physical assets and were planning more than $6 billion of capital expenditure during the next 10 years.

We first reported on DHB asset management in 2009/10. DHBs produced asset management plans in 2009 in response to the Ministry of Health's requirements for DHBs to document their approach to asset management in asset management plans. In Managing public assets (2013), we looked at asset management practices in 340 public entities. Health assets had some of the lowest condition ratings of all public sector assets. Therefore, we decided that it was important to keep a focus on DHBs' asset management.

Throughout the focus we have had on DHB asset management, we have expected each DHB to:

• know how well its mix of assets meets its service delivery needs now, and in the future;
• understand, respond to, and manage demand for its assets and the related risks;
• ensure that there are good links between its asset management planning and its other service and financial planning, with clear responsibility for planning and for having an up-to-date documented plan; and
• have information about its assets and their condition that is reliable enough to support its planning for long-term service delivery.

Because DHBs are part of our national health system, we have also expected to see the same knowledge, linking, and understanding at levels appropriate for effective regional and national planning.

Societal and technological changes continue to be major influences on the health system. These influences are a significant challenge in managing pressure on health services and budgets. We have illustrated in this report what we think needs to happen for asset management to put delivery of service to people today and in the future at the core.

The results of our work for this report show that:

• About two-thirds of DHBs are unlikely to have substantively updated their asset management plans since 2009.
• DHBs tend not to specify the levels of service they expect from their assets. As a result, reporting on asset performance is generally weak.
• Many DHBs have asset management information systems with advanced functionality but often do not use the full range of that functionality.
• DHBs generally do not systematically collect, maintain, analyse, and use asset information – such as about age, condition, and performance – particularly for clinical equipment.
• More than half of the DHBs do not regularly reconcile the information held in their asset management and financial information systems.
• There is limited reporting to governors and senior managers about asset performance and condition.

We looked at measures of capital expenditure management drawn from DHBs' financial statements from 2008/09 to 2014/15. It is important to note that the quality of the underlying asset management information can have a significant effect on these financial measures.

For all the seven years we reviewed, fewer than half of the DHBs had indicators at levels that I would characterise as representing good financial and asset management. For instance:

• There has been sizeable over-budgeting or underspending of capital, suggesting that DHBs might not be investing the capital needed to continue to deliver their services in the future.
• Almost half of DHBs' capital expenditure is funded externally rather than from operating cash flows, indicating that DHBs rely heavily on funding from the Crown to renew or replace assets.
• It appears that some DHBs are renewing or replacing assets over time but that others are not.

These results lead me to question how well positioned DHBs are to support future service delivery.

Our audit work since 2009 shows a sector strongly focused on delivering short-term results within a challenging operating environment and financial constraints. But I am concerned that DHB asset management does not seem to have gained much traction in this time.

The public health system faces serious challenges from a rising demand for services and for access to better technologies, exacerbated by an ageing population. To deal with these challenges, the health sector and each DHB will need to take a longer-term perspective on health services and the associated capital investment and asset management.

I expect each DHB to give more attention in the future to its management of the assets we all depend on for health services. I have been reassured by the number of DHBs that, in commenting on the draft of this report, told me of their commitment to good asset management and what they are doing to improve it. My auditors will continue to monitor DHBs' asset management.

I would like to see more effort made to identify, share, and implement lessons from the leaders of DHB asset management. DHB asset management practitioners told me that the Health Asset Management Improvement Group, formed in 2015, aims to do this.

I also expect the Ministry of Health and the Treasury to provide support to help DHBs to improve their asset management practices. I have been assured that this will done by implementing the 2015 Cabinet Office Circular on Investment Management and Asset Performance in the State Services. My Office will keep an active interest in that implementation.

Lyn Provost
Controller and Auditor-General

3 June 2016