Mr. Freeman Nomvalo - MFMA

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ASSET MANAGEMENT
SEMINAR 2010
ASSET MANAGEMENT:
A critical element in ensuring service delivery
S F Nomvalo
National Treasury: Republic of South Africa
24 – 25 November 2010
1
Overview
• Purpose accountability reporting
• The business imperatives of accountability
• What can go wrong?
• What is needed to make it work?
• Factors impacting development
• Conclusion
2
2
Financial reporting objective
Financial reporting should demonstrate the accountability of
the government entity for the financial affairs and resources
entrusted to it, and provide information useful for decision
making purposes.
To achieve this objective the financial statements should be
prepared in accordance with a suite of standards aimed at
providing relevant, understandable, comparable and reliable
information.
The information must therefore reflect the truth of all the
activities that occur in the entity, it must be fairly presented.
3
The Short Definition of Advanced AM
Making the
right decision / adopting the right solutions at the
right time for the
right cost
for the right reasons
Across our whole portfolio of assets as just part of the
business strategies
‘Making good investment decisions’
Copyright © RBA.
2009
The six “whats” of asset management
1. What do you own?
Asset Register
2. What is it worth?
3. What is its condition?
Condition
4. What is the backlog maintenance? Assessments
5. What is the remaining service life?
6. What do you fix first?
Prioritising & Scheduling
Vanier, D.J., NRCC, 2000
AM & Service delivery
Service
Delivery
Informed
Decisionmaking
Integrated
Planning &
Management
Approach
Accountability
&
Responsibility
ASSET MANAGEMENT PRINCIPLES
Source: National Treasury – Asset Management Learner’s Guide
Where does the problem lie?
7
5.00
Very
Good
4.00
3.00
Fair
2.00
Bad
Age (Years)
12/11/2008
No Maintenance
8
125
120
115
110
105
100
95
90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
Very
Bad
5
1.00
0
Average Condition
Good
5.00
Very
Good
4.00
3.00
Fair
2.00
Bad
Age (Years)
12/11/2008
No Maintenance
Low Maint Level
9
125
120
115
110
105
100
95
90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
Very
Bad
5
1.00
0
Average Condition
Good
5.00
Very
Good
4.00
3.00
Fair
2.00
Bad
Age (Years)
No Maintenance
12/11/2008
Low Maint Level
10
Normal Maint Level
125
120
115
110
105
100
95
90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
Very
Bad
5
1.00
0
Average Condition
Good
5.00
Very
Good
4.00
3.00
Fair
2.00
Bad
Age (Years)
No Maintenance
12/11/2008
Low Maint Level
Normal Maint Level
11
High Maint Level
125
120
115
110
105
100
95
90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
Very
Bad
5
1.00
0
Average Condition
Good
5.00
Very
Good
4.00
3.00
Fair
2.00
Bad
125
120
115
110
105
100
95
90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
Very
Bad
5
1.00
0
Average Condition
Good
Age (Years)
No Maintenance
12/11/2008
Low Maint Level
Normal Maint Level
High Maint Level
12
Very High Maint Level
5.00
R1
Very
Preventative Maintenance
Good
Good Condition-based Maintenance
R5 +
X5
4.00
R25 +
X5
3.00
De Sitter’s “Law of Fives”
Bad Rehabilitation
2.00
Very
Replacement
Bad
Age (Years)
12/11/2008
No Maintenance
13
125
120
115
110
105
100
95
90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
1.00
0
Average Condition
Fair Repairs
The consequences of not managing assets
properly....
14
Does it make a difference?
Infrastructure
www.thoughtleader.co.za/.../02/dirty-water.jpg
Do you know what is
in the tap water you
drink?
Source: Witbank News
Is it any different from
the water in our rivers?
15
Agh! we just had too much rain than
normal or did we?
Can we live with it???
When is it time to act?
18
Watch out!!!
19
Oops – is sorry enough?
20
What happens next...
21
22
23
Best Practices
Local Government
Best Practices
EC
FS
GP
Audit Trail
24%
21%
75%
Quality of AFS
27%
26%
Timeliness
KZN
LP
MP
NC
NW
WC
TOT
45%
26%
68%
25%
25%
50%
33%
50%
48%
4%
37%
29%
25%
4%
16%
54%
84% 100%
68%
91%
89%
92%
60%
79%
75%
Officials
35%
68%
83%
55%
39%
68%
38%
50%
75%
49%
Internal Control
16%
16%
67%
55%
17%
21%
13%
25%
50%
17%
Leadership
24%
21%
67%
60%
30%
47%
25%
25%
71%
31%
24
AUDIT OUTCOMES 2007/08
LOCAL GOVERNMENT
Audit Opinion EC
FS
GP
KZN
LP
MP
NC
NW
WC
TOT
-
-
2%
3%
-
-
4%
-
3%
Adverse
13%
Disclaimer
31% 56%
15% 47% 14% 53% 44% 10%
30%
Qualified
29% 12% 29% 19% 13% 33% 22% 16% 10%
20%
Unqualified
9%
8%
32%
-
-
Clean reports
7%
43% 60% 13% 43%
3%
7%
3%
2%
-
-
16% 77%
-
-
1%
% of Munics
82% 76% 86% 98% 76% 90% 81% 80% 97%
86%
Outstanding
18% 24% 14%
3%
14%
30
283
Total Munics
45
25
14
2%
61
24% 10% 19% 20%
30
21
32
25
25
What is needed?
 Appropriately skilled personnel
– Basic relevant qualification
– Appropriate experience

Sound control environment
– Existence and effectiveness of internal audit and audit committee
– Proper functioning risk management
– Correct tone at leadership level
 Vigilant administrative & political leadership awa oversight
 Increased and focused support from provincial and
national government.
Factors impacting the Dev Role
1.
Improve collection of outstanding revenue owed.
–
2
Prudent financial management
–
3
Assets must be maintained
Municipalities present our country with a great platform for job
creation.
–
5
Avoid wasteful and unnecessary expenditure
Protect the health of your asset base.
–
4
The combined debt owed to local government is in the region of
R50.4 billion (excluding provisions for bad debt)
Accelerate programmes, like grass cutting, inner city and township
regeneration, clearing of drains, filling of potholes
Zero tolerance to corruption,
–
Fraud and maladministration in your municipality.
27
CONCLUSION
Applying accounting standards is not just about
compliance and balancing the numbers but
about ensuring accountability and enhancing
service delivery through informed planning and
decision-making.
The citizens are not a bunch of mushrooms to be
kept in the dark – transparency is key.
28
DISCUSSION?
29
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