Transcript Document

IMFO – Western Cape Conference
ASSET MANAGEMENT – ARE WE
SURVIVING?
4 June 2012
Presentation Contents
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Issues Raised During 2011 Audit Cycle
Complying with GRAP 17
CAPEX vs. OPEX
Unbundling of Infrastructure – What are the Challenges?
Questions
PROPERTY, PLANT AND EQUIPMENT
Issues Identified During 2011 Audits:
Loose Assets
• Assets that appear in the FAR could not be physically verified
• Items were identified that were not captured in the FAR
• Items with book values or cost prices of R0 or R1 appears in
the FAR
• Supporting documentation for additions could not be obtained
• Depreciation was calculated incorrectly
• Useful lives and residual values were not reviewed
• Depreciation rates applied differs from accounting policy
PROPERTY, PLANT AND EQUIPMENT
Issues Identified During 2011 Audits:
Loose Assets
• No proof that the municipality evaluated assets for possible
impairments
• Assets that replace existing assets were treated as repairs
and maintenance items
PROPERTY, PLANT AND EQUIPMENT
Issues Identified During 2011 Audits:
Land and Buildings
• Land and buildings appear on the FAR which are not
registered in the municipality’s name
• Land and buildings are registered in the municipality’s name
that do not appear in the FAR
• Land and buildings appear in the FAR without cost prices
• Depreciation was written-off on land
• The value in the valuation roll is compared to the book value
to test for impairments
• Useful lives and residual values were not reviewed
PROPERTY, PLANT AND EQUIPMENT
Issues Identified During 2011 Audits:
Infrastructure Assets
• Supporting documentation for the calculation of the valuation
was not available
• Time limit for obtaining supporting documentation for auditors
• Invoices could not be linked to the infrastructure additions in
the FAR
• Infrastructure asset could not be physically verified
• Replacement of existing infrastructure could not be linked to
original infrastructure item
• Useful lives and conditions could not be justified
• Incorrect valuation methods used for AFS
PROPERTY, PLANT AND EQUIPMENT
Issues Identified During 2011 Audits:
Infrastructure Assets
• Transfers of infrastructure assets of DMA to locals
• Incorrect unbundling methodology utilised
• Inadequate controls over expenditure on in-house projects
• GIS systems were not updated with relevant information
• Struggle to obtain documentation from consulting engineers
• Late closing-off of creditors resulted in late submissions
• Inadequate control over MIG expenditure
• Retentions relating to infrastructure was incorrectly treated
INVESTMENT PROPERTY
Issues Identified During 2011 Audits:
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Investment property classified as PPE
Investment property without cost prices
Disclosure information not complete in terms of GRAP 16
Depreciation rates do no correspond to accounting policy
Fair value of investment property not assessed
Increase in fair value treated as a revaluation
INTANGIBLE ASSETS
Issues Identified During 2011 Audits:
• Items were identified that were not captured in the IAR
• Items with book values or cost prices of R0 or R1 appears in
the FAR
• Supporting documentation for additions could not be obtained
• Amortisation was calculated incorrectly
• Useful lives and residual values were not reviewed
• Amortisation rates applied differs from accounting policy
COMPLYING WITH GRAP 17
• Today will focus on the things that we find municipalities are still doing
wrong
• Annual reviews of:
– Useful lives
– Depreciation methods
– Residual Values
– Impairment tests
• The problem is that most of the Asset Register Programs battle to treat
these Changes in Accounting Estimates and Correction of Errors correctly
• In many cases municipalities are forced to revert back Excel FAR’s just to
comply with the Standard’s disclosure requirements
• ASB’s “Simplification Project”
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Application of Directive 7; Deemed Cost
COMPLYING WITH GRAP 17
• Timeous identification of additions:
– Review repairs and maintenance accounts for possible assets which
were expensed;
– Review grant votes for possible additions which were purchased
directly against grant votes;
– Unbundle the invoices into the relevant components;
– Bar-code the additions, where possible;
– Determine an expected useful life for each asset based on the use of
the asset.
• Capital vs Operating
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Definition of asset
Increase in useful life
Replacement of part of an asset
Depends on how items are classified in FAR
OPEX
Operations
(other operational expenditure)
To achieve required
asset performance
To achieve expected useful life
of asset
Unplanned
Example:
Vehicle can not
perform without
oil, fuel, tyres.
This is not part of
R&M.
Maintenance
• Repairs (Example
pipe burst and one
length is replaced)
• Replacement of
insignificant
components
Planned
• Preventative, time and condition
based. (Example vehicle services)
• Monitoring and inspection
• Planned corrective maintenance.
CAPEX
Disposal
New Construction
Upgrading
Renewal
To create a new
asset
To increase asset
capacity/
performance
To extend
asset life span
To discard and /or
de- commission
Replacement
Rehabilitation
Asset life
recommences
Full or partial
extension of asset life
UNBUNDLING OF INFRASTRUCTURE – WHAT ARE
THE CHALLENGES?
• Most municipalities have now unbundled their infrastructure
but what about the future?
• The issue of how far to unbundle
– Should be linked to different useful lives for different components
• How do we handle the annual unbundling?
– Has to be done for ALL completed infrastructure projects
– Change the tender specs to include Photos, Bill of Quantities and GPS
co-ordinates as part of the final deliverable – Saves a lot of time and
external support!!
– Record the date on which asset is READY FOR USE
– File supporting docs for each project separately with all relevant
invoices, payment certificates, tender documents and timesheets
– Internal projects – keep job cards
UNBUNDLING OF INFRASTRUCTURE – WHAT ARE
THE CHALLENGES?
• How do we handle the annual unbundling?
– Cannot be completed until creditors are closed-off at year-end –
Careful planning is required to meet deadlines. Caused numerous late
submissions during 2011
– Update the GIS
– How do we treat replacements of existing infrastructure?
UNBUNDLING OF INFRASTRUCTURE – WHAT ARE
THE CHALLENGES?
• How do we handle the annual unbundling?
– Cannot be completed until creditors are closed-off at year-end –
Careful planning is required to meet deadlines. Caused numerous late
submissions during 2011
– Update the GIS
– How do we treat replacements of existing infrastructure?
QUESTIONS