A Guide to Completing an Auditable Special Schedule 7 · Special Schedule 7 Methodology –Part 1...
Transcript of A Guide to Completing an Auditable Special Schedule 7 · Special Schedule 7 Methodology –Part 1...
Special Schedule 7 Methodology – Part 1 DRAFT. V1.2.141222 [email protected] 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
Part 1
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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.
Introduction Part 1
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• 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 6.1 - 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 6.4 - 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 3.4.1 - March 2013
• The Asset Management Plan/s must identify asset service standards. IPR Manual Section 3.4.2 - 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 3.4.2 - March 2013
JRA
The Annual Report Part 1
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Key Concepts1. 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 31000 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
Part 1
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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
Part 2
Special Schedule 7 Methodology – Part 1 DRAFT. V1.2.141222 [email protected] 6
• 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
About Part 2Part 2
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• BTS is the sum of Modern Equivalent Renewal Cost of high residual risk assets not financed in current ornext year’s budget. This is based on assets due for renewal but not funded. Cost to bring to satisfactoryis 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 BTSreporting.
• BTS analysis must be carried out for each material asset component. Network averages should not beused to determine BTS.
• The connection to risk registers reinforces the importance of independent Audit Committees to reportservice risks to Council. This enables the essential separation of aspirational but unaffordable servicelevels with essential service levels.
• Aspirational service levels that the community does not want to pay for and do not present high residualrisks are not infrastructure backlog or financial sustainability risks.
• If service levels are declining in accordance with an adopted, agreed and communicated assetmanagement strategy this is not backlog, nor a financial sustainability risk provided risks are managed andcommunicated.
• Integrated Planning and Reporting Manual for local government in NSW MARCH 2013. 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
Part 2Key Concept
Cost to Bring to Satisfactory (BTS)
Resource Material
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Part 2Key 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.
• Integrated Planning and Reporting Manual for local government in NSW MARCH 2013. Premier & Cabinet - Division of Local Government
Resource Material
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• Integrated Planning and Reporting Manual for local government in NSW MARCH 2013. 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
Part 2Key Concept
Required Annual Maintenance
Resource Material
• 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.
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• IPWEA NAMSPLUS Asset Management Plan Template
Part 2
Resource Material
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.
This is often considered as BTS or “backlog”
• 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.
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• IPWEA NAMSPLUS Asset Management Plan Template
Part 2
Resource Material
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.
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(NAMSPLUS –Report 6 -Appendix B) shows renewal program required in the
current year. This report is based on modern equivalent renewal cost.
Step 1 – Check Unfunded Renewal
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 6.1.1
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(NAMSPLUS – Risk Register Template and Risk Section
in AMP)
Step 2 – Identify High Residual Risk
NAMSPLUS.3
Risk Types
• Injury
• Service Interruption
• Reputation
• Environment
• Financial
Asset Register - Total Assets with zero remaining life in 2014
15,409,875Total Due from Asset Register
15,342,875Asset Life too short - needs to be re assessed
17,000High Risk - unfunded and due in 2014
50,000
Low Risk - deferring renewal will not have material risk or service level
consequence
What proportion of unfunded
renewal has high residual risk ?
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(NAMSPLUS – Risk Register Template and Risk Section
in AMP)
Step 3 – Bring to Satisfactory (BTS)
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
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(NAMSPLUS – Risk Register Template and Risk Section
in AMP)
Step 4 – Maintain at Satisfactory (MAS)
NAMSPLUS.3
MAS = Additional maintenance
resulting from deferred renewal
(option C)
Risk Types
• Injury
• Service Interruption
• Reputation
• Environment
• Financial
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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.
(NAMSPLUS – Form 3
Step 5 – Align AMP and SS7