Compliance with the Asset Management Accountability Framework

Tabled: 23 May 2019

1 Audit context

1.1 Background

Many public services rely on public assets such as trains, roads and schools to support their delivery. The Treasurer's 2017–18 Financial Report identifies that the State of Victoria controlled a total of $265 billion of non-financial assets at 30 June 2018. Inadequate management of these assets can affect the services these assets provide or support, and, therefore, the quality of life for all Victorians.

Our Auditor-General's Report on the Annual Financial Report of the State of Victoria, 2015–16 to Parliament noted that although the state is spending more on adding new assets than it is on replacing existing assets, this ratio is trending downward, and it is spending less than it has in the past. Our report emphasised that reliable asset knowledge is fundamental to making strategic decisions about infrastructure spending.

Asset management involves a range of related activities throughout the asset lifecycle from the initial assessment of investment proposals, ongoing maintenance and renewal through to asset replacement or disposal decisions.

Good asset management allows the government to keep track of the number, location, performance and condition of its assets and enables it to:

  • get the best value from asset-related investments by directing available funding to identified needs and risks—risks include the potential for services to be disrupted
  • bring whole of lifecycle considerations to asset investment, divestment and replacement decisions
  • minimise the demand for new assets
  • optimise the use and lifespan of existing assets
  • allocate maintenance funds effectively
  • respond promptly to foreseen and unforeseen changes in demand or use.

1.2 The Asset Management Accountability Framework

Asset management is about knowing the assets held and the purpose they serve, understanding the risks associated with them, having a long-term strategy to manage the assets and risks, and knowing how to deliver the strategy. It is a longstanding management discipline.

DTF released the Victorian Government's AMAF in February 2016. It replaced Sustaining Our Assets, Victoria's previous asset management policy and framework, released in 2000. Despite these asset management frameworks, our audits and other reviews have repeatedly found poor asset management practices in many agencies. When DTF reviewed the past framework's effectiveness in 2013, it determined that a reason for this lack of effectiveness was that agencies were not taking accountability for their performance in managing their assets.

The AMAF aims to address this by strengthening the focus on leadership and accountability for asset management. Its purpose is to help public sector agencies manage their assets efficiently and effectively, provide better services and link asset information to investment decisions.

The AMAF applies to all non-current assets (physical and intangible), excluding financial assets, that government departments, agencies, corporations, authorities and other public bodies control. The AMAF sets 41 mandatory requirements. DTF provides guidance to help agencies implement the framework.

The AMAF makes agency heads or governing boards accountable for applying the AMAF and improving asset management. They must also publicly attest to compliance with the standing directions in their annual reports.

Victoria is the only Australian jurisdiction that applies this combination of accountability, mandatory requirements and public attestation to asset management.

Important characteristics of the AMAF

The accountable officer is the agency head:

  • the Secretary of a government department
  • the chief executive officer of a public body.
  • The accountable officer is responsible for applying the AMAF.

The responsible body is:

  • the Secretary of a government department
  • the board of a public sector agency.

The responsible body attests to compliance with the AMAF.

In departments, the Secretary is the accountable officer and the responsible body and has overall responsibility for their agency's financial management, performance and sustainability.

The AMAF assigns accountability to three key roles in an agency:

  • accountable officers—the agency head is responsible for applying the AMAF
  • responsible bodies—the board or Secretary is responsible for publicly attesting to compliance with the AMAF
  • audit committees—the audit committee is responsible for making sure it is satisfied with the veracity of the agency's compliance assessment and of its proposed attestation of compliance with the standing directions, before the responsible body signs it.

The AMAF aims to help public sector agencies manage their assets efficiently and effectively over the entire asset lifecycle and to:

  • provide better and more efficient services
  • optimise the longevity of assets
  • maximise value for money
  • minimise the demand for new assets
  • use asset information to better inform investment decisions.

The AMAF identifies six principles to achieve these aims, as seen in Figure 1A.

Figure 1A
The AMAF's principles for asset management

The principles include Whole of lifecycle, Informed decision-making, Responsible and accountable, Considerate of all government policies, Integreated into planning, and at the centre is Service delivery.

Source: AMAF, DTF, 2016.

The AMAF uses the asset definitions under the Australian Accounting Standards and applies to all assets above the threshold value that each agency establishes. It closely aligns with the ISO 55000 series of asset management standards.

How the AMAF works

The AMAF and the standing directions require an agency head—the accountable officer—to ensure the agency applies the AMAF.

The AMAF is designed to allow agencies to apply the framework and meet the requirements in a way that is 'fit for purpose' to suit service delivery objectives and organisational characteristics, such as the agency's size and the complexity of its assets.

DTF has provided guidance on implementation, materiality assessment and intangible assets to help agencies apply the AMAF.

To ensure agencies implement effective asset management systems that meet AMAF aims and principles for good asset management, the AMAF identifies:

  • 41 mandatory requirements—what accountable officers must do
  • 42 general guidance points—what accountable officers should do.

Appendix B shows the 41 mandatory requirements.

The requirements and guidance are grouped across five themes that span the asset lifecycle—leadership and accountability, planning, acquisition, operation and disposal—and relate to:

  • resourcing and skills
  • governance and allocating asset management responsibility
  • asset management strategy
  • risk management and contingency planning
  • monitoring the performance of assets and the agency's asset management system
  • acquisition, maintenance and disposal
  • information management and record-keeping.

The AMAF applies to asset management activities that the agency devolves or outsources, as well as those it manages in-house. It calls for agencies to do two things:

1. Manage their assets well and achieve better practice over time:

  • The AMAF requires agencies to self-assess the maturity of their asset management systems and practices periodically from 2020–21.
  • It expects that agencies' asset management maturity will increase over time as they continue to apply the requirements and the general guidance.

2. Comply with the 41 mandatory requirements:

  • The AMAF requires agencies to attest to their compliance with the 41 mandatory requirements.
  • Compliance is enforced through the standing directions.

Figure 1B illustrates the relationship between the improvement and compliance aspects.

Figure 1B
Relationship between the AMAF, improving asset management and compliance

At the centre of the diagram sits Asset management. Around the outside Apply the AMAF leads to Modify asset management practices which leades to Improve asset management. This lease to Assess compliance with the AMAF which leads to Review asset management performance. This leads to Continuous improvement when loops back into Apply the AMAF.  And the implication is that the loop starts again.

Source: VAGO.

The AMAF does not set a time by which agencies need to achieve full compliance or an appropriate level of asset management maturity.

1.3 Enforcing the AMAF

To enforce accountability and compliance with the mandatory requirements, DTF made applying the AMAF one of the standing directions. This means that the accountable officer must assess compliance with the AMAF annually and publicly attest to compliance in their annual report.

Figure 1C shows how the AMAF relates to the Financial Management Act 1994 and the standing directions and other government policies.

Figure 1C
The relationship between the AMAF and other government policies

Top and centre is the Financial Management Act 1994.  In descending order below sits the Standing Directions of the Minister for FInance, the Asset Management Accountability Framework, then Leadership and Accountability.  Leading into Leadership and Accountability are Associated government asset policies and frameworks and leading out is Attestation by Responsible Body and Portfolio oversight by Secretary.  At the bottom two-way arrows connect Leadership and Accountability with Planning, Acquisition, Operation and Disposal.

Source: AMAF, DTF, 2016.

Standing Directions of the Minister for Finance 2016

The 2016 standing directions replaced the 2003 directions. The changes included the requirement for a public attestation of compliance with all standing directions, replacing the previous system of a public attestation for risk and insurance only and an internal attestation to DTF on the remaining requirements.

To accompany the standing directions, DTF published:

  • Instructions supporting the Standing Directions of the Minister for Finance 2016 (the standing directions instructions)—more detailed mandatory requirements related to specific directions
  • Guidance supporting the Standing Directions of the Minister for Finance 2016 (the standing directions guidance)—non-mandatory information to help agencies interpret and implement the directions and instructions.

From November 2018, the Assistant Treasurer became responsible for the standing directions. In December 2018, the Assistant Treasurer revised the standing directions to incorporate ministerial and machinery of government changes following the state election. DTF updated the standing directions instructions at this time. We conducted this audit against the 2016 standing directions and instructions because these applied at the time of the 2018 attestation.

The standing directions and instructions include 458 financial management obligations—not all are relevant to every agency—across 50 areas of financial management. The direction related to the AMAF is one of the 458 obligations.

Compliance requirements

The standing directions require agencies to assess and report compliance with all directions on financial management, including the AMAF. The standing directions require an agency to:

  • assess compliance annually
  • identify, respond to and report on material compliance deficiencies
  • attest to compliance in its annual report
  • use its internal audit function to review compliance with all requirements of the standing directions and instructions over the agency's three- or four-year internal audit planning cycle.

The standing directions also set responsibilities for the agency's audit committee, including reviewing the agency's annual compliance assessment and monitoring remedial actions to address all compliance deficiencies. The standing directions require departments to provide a compliance summary report to DTF.

Under the AMAF, agencies are accountable for compliance. The AMAF does not give DTF responsibility for checking or verifying agencies' compliance—this is up to accountable officers and audit committees. The compliance assessments and reporting rely on agency self-assessments.

Attestation requirements

Agencies' obligations to attest to compliance with the AMAF come from two sources—the standing directions and the AMAF.

Standing direction 5.1.4 requires:

  • a department's Secretary to attest in the department's annual report to compliance with applicable requirements in the Financial Management Act 1994, the standing directions and instructions, and to disclose all material compliance deficiencies
  • the department's audit committee to review the attestation.

The AMAF mandatory requirement 3.1.3 requires:

  • a department's audit committee to be satisfied with the department's proposed attestation of compliance with the AMAF prior to finalising the attestation in the annual report—to be confident about its veracity
  • agencies to follow other standing directions related to ensuring compliance and supporting the attestation.

The AMAF implementation guidance explains that the attestation's purpose is for accountable officers to demonstrate their oversight of asset management. When an attestation does not identify a material compliance deficiency, the agency is deemed 'compliant' with the AMAF and the standing directions.

Transition arrangements for attestation and maturity

The AMAF supported a two-year transition period leading up to formal attestation in agencies' 2017–18 annual reports to give agencies time to implement any new policies and systems. During this period, DTF expected agencies to implement the AMAF and conduct a trial attestation in 2016–17.

For the 2017–18 financial year, agencies were required to assess their compliance with the AMAF and, in their annual reports, attest to compliance on 30 June 2018 and disclose any material compliance deficiencies.

From the 2018–19 financial year, and on an ongoing basis, agencies' assessments and attestations will apply to a compliance assessment for the entire financial year.

From 2020–21, each agency must self-assess its level of asset management maturity at least every three years and state this in its annual reports. This requirement is designed for agencies to demonstrate progress towards better practice asset management.

1.4 DTF's responsibilities under the AMAF and the standing directions

Under the Victorian Government's devolved accountability model, responsible bodies must manage their assets in a manner that is consistent with their specific circumstances and the nature of their assets, and are accountable for their compliance. DTF has roles in supporting implementation of the AMAF and the standing directions. However, it does not have responsibility for checking or verifying agencies' compliance.

DTF's responsibilities for the AMAF

Under the AMAF, DTF is responsible for ensuring the framework remains up to date and consistent with legislation and other associated government asset policies and frameworks. DTF must also advise the government on whole-of-government asset management issues, which helps the government make decisions on asset planning, acquisition, and operational and disposal matters.

DTF's responsibilities for the standing directions

Under the standing directions, DTF may issue mandatory instructions that are linked to specific standing directions to provide more detail about the mandatory requirements. DTF may also issue non-mandatory guidance to provide supporting information in relation to the interpretation and implementation of the standing directions and instructions.

1.5 Departmental responsibilities for applying the AMAF

Government departments are one type of agency that the AMAF applies to. Each department is responsible for applying the AMAF to the assets it owns or has responsibility to manage, and for attesting to compliance with the AMAF for these assets.

Under the Public Administration Act 2004, each department also has oversight and support responsibilities for related public entities—portfolio agencies—that share the same minister(s) as the department. The standing directions require departments to oversee the financial management of their portfolio agencies, including their asset management.

Secretaries

Departmental secretaries are the accountable officers. They are responsible for applying the AMAF, meeting the requirements to manage assets under their control and attesting to all applicable standing directions.

Audit committees

Each department has an audit committee, which plays a key role in providing departmental management with independent and objective advice on matters including financial reporting, risk management, and internal and external audits.

The AMAF requires audit committees to satisfy themselves with the veracity of the department's recommended attestation of compliance with the AMAF and its disclosure of any material compliance deficiencies.

The standing directions and related instructions and guidance further require committees to:

  • review the department's annual assessment of compliance with the AMAF
  • provide the Secretary with assurance, advice and recommendations on the level of compliance attained, issues to be resolved and proposed mitigation plans
  • review and monitor the actions the department takes to remedy compliance deficiencies.

1.6 Departmental asset responsibilities

The departments are responsible for a significant proportion of the Victorian Government's assets. The value and types of assets vary significantly between departments, as highlighted in Figure 1D and the following sections.

Figure 1D
The value of non-financial assets controlled by government departments at 30 June 2018

The information contained in this bar graph is explained below.

Source: VAGO, based on departments' 2017–18 annual reports.

Machinery of government change

Machinery of government refers to the allocation of functions and responsibilities between departments and ministers. From 1 January 2019:

  • DEDJTR separated into two new departments—DoT and DJPR
  • DJR changed to DJCS.

DEDJTR and DJR were the departments in place at the time of the 2018 attestation, so they were the focus of our audit analysis and are the departments we mostly refer to in this report.

Department of Treasury and Finance

DTF held $878 million of non-financial assets at 30 June 2018, with $825 million of this in land and buildings. Some DTF portfolio agencies, including CenITex and the Old Treasury Building Committee of Management, also manage assets.

Department of Economic Development, Jobs, Transport and Resources

DEDJTR was responsible for driving Victoria's economic development and job creation. Its major portfolio agencies included Public Transport Victoria, V/Line, VicRoads and VicTrack.

At 30 June 2018, DEDJTR directly managed $2.8 billion of non-financial assets, including $708 million related to agriculture, $430 million related to creative industries, $232 million related to tourism, major events and international education, and $172 million related to major projects. More than $92 billion of transport assets sit with two portfolio agencies, VicTrack and VicRoads.

Department of Education and Training

DET provides learning and development support and services for schools, TAFEs and early childhood centres. School property, plant and equipment represent 88 per cent ($24.5 billion) of the department's total assets. Corporate assets, including information technology and intangibles, make up the rest of DET's non-financial assets.

School asset planning and management is the shared responsibility of departmental staff, school principals and school councils. DET is responsible for delivering school infrastructure, funding school assets, and setting asset management policies and standards. Principals are responsible for asset management in schools. The responsibilities of school councils include community engagement, fundraising and the purchasing, use and maintenance of facilities.

Department of Environment, Land, Water and Planning

DELWP is responsible for Victoria's planning, local government, environment, energy, forests, emergency management, climate change and water functions.

At 30 June 2018, of DELWP's $9.96 billion non-financial assets, various categories of public land made up $8.3 billion. The remaining $1.6 billion includes 40 000 kilometres of roads, bridges and tracks, office buildings, depots, firefighting equipment and water bores. Major portfolio agencies include the Environment Protection Authority Victoria and water and catchment management authorities.

Department of Health and Human Services

The responsibilities of DHHS encompass areas such as public housing, hospitals, disability, mental health and child protection services. DHHS held $30.4 billion of non-financial assets at 30 June 2018. This figure excludes assets controlled by health and human services agencies that are separate to the department, such as public hospitals.

Department of Justice and Regulation

DJR led the delivery of justice services in Victoria, with service delivery responsibilities ranging from managing the state's adult prisons and youth detention centres to providing consumer protection. At 30 June 2018, DJR held $3.4 billion of non-financial assets, with most of its assets in public prisons.

Department of Premier and Cabinet

DPC supports the Premier, Deputy Premier, the Special Minister of State and other ministers, as well as the Cabinet. DPC reported $660 million of non-financial assets at 30 June 2018. Its major assets are the land and buildings associated with Government House, and public records and facilities in the Public Record Office Victoria.

1.7 Previous audits

Recent reports that have included an asset focus include:

  • Protecting Victoria's Coastal Assets, 2018
  • Results of 2017–18 Audits: Local Government, 2018
  • Results of 2017 Audits: Technical and Further Education Institutes, 2018
  • Managing School Infrastructure, 2017
  • Managing Victoria's Public Housing, 2017
  • Results of 2016–17 Audits: Public Hospitals, 2017
  • Results of 2016–17 Audits: Water Entities, 2017
  • Managing the Performance of Rail Franchisees, 2016.

A common theme of these audits is that asset management is a critical issue for departments and agencies, as it is important that assets are managed well to deliver good services.

1.8 Why this audit is important

Good asset management is critical to supporting service delivery and achieving value for money from investments in infrastructure and other assets. Previous reviews have identified fundamental weaknesses in the way public sector agencies manage assets across a range of portfolios, from schools and hospitals to transport and coastal protection. Our past audits identified recurring weaknesses in the way public sector agencies manage assets across a range of portfolios. Agencies often focus on building or buying new assets, rather than on managing existing assets strategically to maximise value, and public sector asset management is often neglected or poorly done.

The AMAF aims to remedy this by increasing agencies' accountability for asset management and requiring them to adopt better practice asset management approaches.

This audit assesses aspects of the AMAF's operation early in its rollout. It provides Parliament with assurance about the reliability of the compliance attestations made by all departments and shares good practices from their progress in implementing the AMAF.

1.9 What this audit examined and how

Our audit objective was to determine the reliability of departments' attestations of compliance with the AMAF.

We examined whether departments:

  • have sound approaches to implementing the AMAF and supporting an accurate attestation
  • have applied their assurance approaches as planned and make reliable attestations.

We focused on the approaches departments had in place to inform their 2018 attestations.

We chose to focus on departments because of the significant value and criticality to service delivery of the assets they manage directly or oversee through their portfolio agencies. We did not examine departments' asset management practices and operations, nor their oversight arrangements for portfolio agencies.

The departments we audited were DEDJTR, DET, DELWP, DHHS, DJR, DPC and DTF.

We also examined DTF's role as the policy owner of both the AMAF and the standing directions.

We conducted our audit in accordance with section 15 of the Audit Act 1994 and ASAE 3500 Performance Engagements. We complied with the independence and other relevant ethical requirements related to assurance engagements. The cost of this audit was $595 000.

1.10 Report structure

The structure of this report is as follows:

  • Part 2 examines how departments have applied the AMAF through their whole-of-department implementation planning and asset management plans.
  • Part 3 focuses on the approaches that departments and audit committees used to assure compliance with the AMAF and support the 2018 attestation.
  • Part 4 assesses DTF's actions to support the AMAF's implementation and departments' compliance with it.

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