1 ASSET MANAGEMENT: A critical element in ensuring service delivery S F Nomvalo National Treasury: Republic of South Africa 24 – 25 November 2010 ASSET MANAGEMENT SEMINAR 2010

2 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

3 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.

Copyright © RBA 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’

The six “whats” of asset management Asset Register Condition Assessments Prioritising & Scheduling 1. What do you own? 2. What is it worth? 3. What is its condition? 4. What is the backlog maintenance? 5. What is the remaining service life? 6. What do you fix first? Vanier, D.J., NRCC, 2000

ASSET MANAGEMENT PRINCIPLES Source: National Treasury – Asset Management Learner’s Guide Informed Decision- making Asset Management Policy Framework Accountability & Responsibility Integrated Planning & Management Approach Service Delivery AM & Service delivery

7 Where does the problem lie?

12/11/2008 8

9 Very Good Good Fair Bad Very Bad

12/11/ Very Good Good Fair Bad Very Bad

12/11/ Very Good Good Fair Bad Very Bad

12/11/ Very Good Good Fair Bad Very Bad

12/11/ Very Good Good Fair Bad Very Bad Preventative Maintenance Condition-based Maintenance Repairs Rehabilitation Replacement R1 R5 + R25 + X 5 De Sitter’s “Law of Fives”

14 The consequences of not managing assets properly....

15 Source: Witbank News Infrastructure Do you know what is in the tap water you drink? Is it any different from the water in our rivers? Does it make a difference?

Agh! we just had too much rain than normal or did we?

Can we live with it???

18 When is it time to act?

19 Watch out!!!

20 Oops – is sorry enough?

21 What happens next...

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24 Best Practices Local Government Best PracticesECFSGPKZNLPMPNCNWWCTOT Audit Trail24%21%75%45%26%68%25% 50%33% Quality of AFS27%26%50%48%4%37%29%25%4%16% Timeliness54%84%100%68%91%89%92%60%79%75% Officials35%68%83%55%39%68%38%50%75%49% Internal Control16% 67%55%17%21%13%25%50%17% Leadership24%21%67%60%30%47%25% 71%31%

25 AUDIT OUTCOMES 2007/08 LOCAL GOVERNMENT Audit OpinionECFSGPKZNLPMPNCNWWCTOT Adverse13%--2%3%--4%-3% Disclaimer31%56%7%15%47%14%53%44%10%30% Qualified29%12%29%19%13%33%22%16%10%20% Unqualified9%8%43%60%13%43%3%16%77%32% Clean reports--7%2%--3%--1% % of Munics82%76%86%98%76%90%81%80%97%86% Outstanding18%24%14%2%24%10%19%20%3%14% Total Munics

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. –The combined debt owed to local government is in the region of R50.4 billion (excluding provisions for bad debt) 2Prudent financial management –Avoid wasteful and unnecessary expenditure 3Protect the health of your asset base. –Assets must be maintained 4Municipalities present our country with a great platform for job creation. –Accelerate programmes, like grass cutting, inner city and township regeneration, clearing of drains, filling of potholes 5Zero tolerance to corruption, –Fraud and maladministration in your municipality. 27

28 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. CONCLUSION

29 DISCUSSION?