Title: OCR Document
Author: Readiris
Last saved by: PC10
Company: I.R.I.S.

RESEARCH UNIT: DAWOOD

21 April 2008

Asset management strategies of the Department of Water Affairs and Forestry (DWAF)

1. Background

In this context the definition of 'assets' is very broad. Anything that is used by an organisation in order for it to achieve its function can be considered an asset of the organisation. This will include a number of different types of assets, some more obvious than others. Some types of assets, including examples are listed below 

•	Financial assets, such as investments and cash on hand. The example community has saved over R15 000 from water payments, which has been invested with a local bank.

•	Moveable assets, such as vehicles and office furniture. The system operator from our example village uses a bicycle and a small set of tools and spares in his duties. These make up the moveable assets of the organisation.

•	Fixed assets, such as land, buildings, pipes and pumps. As mentioned earlier, the example community's fixed assets consist of two diesel pumps, about 4,2 km of rising main, a storage tank, about 16 km of distribution pipe work, and 43 standpipes.

•	The software and information stored on the organisations computer system. The example system has no computers, but they do have written information on all their assets, which is in itself an asset.

•	The knowledge and expertise developed by the organisation. The example system is managed by a Project Steering Committee drawn from the local community. These people attended formal training for six months, and the knowledge they have gained both from this training and 'on the job' experience is an asset of the organisation.

•	The people who work for the organisation, in our case the operator, and a standby operator.

•	The customers whose needs are being met by the organisation.

All of these things can help an organisation do its job in a better way if they are well managed. Good management of assets enhances community life, and increases the useful life of available resources. These things can also make it difficult for an organisation to do its job at all if they are badly managed.

2. Introduction

Asset management can be broken down into two main components. Firstly, one needs to know exactly what assets are owned by the organisation. This usually takes the form of a register or inventory of assets. The second component is a plan setting out what the asset management should achieve, and how it will work. In its simplest form, an asset register is just a list of all the assets owned by an organisation. For this list of assets to be useful, it has to contain enough information on each asset so that the asset can be effectively managed. Some of the information that should be contained in an asset register is given below.

•	Each asset must have a unique name that clearly identifies the asset throughout the entire organisation.

•	There should be a basic set of data that is the same for all the assets within the organisation, such as the location, age and assessments of value, performance, condition and risk.

•	The register should also record for each asset any information over and above the basic set of data that is necessary to effectively manage the asset. This would also include regular monitoring information such as when the asset was last serviced, or how much it has been used.

Obviously, the information required for each asset will be dependent on the type of asset. Also, the way in which the asset's value, performance, condition and risk are measured will also be different for each type of asset. It is not feasible for an organisation to include every single thing it owns, down to the last pencil and washer on the asset register, so a line has to be drawn somewhere. Ultimately, the value of the information recorded must be greater than the cost of obtaining and maintaining it. But this is not easy to establish. Normally, in order to decide on which assets to include in a register, organisations would look at the following for each type of asset:

•	The value of the asset to the organisation.

•	The information required to effectively manage that type of asset.

•	The cost of obtaining and maintaining that information.

The asset register by itself is not particularly useful to an organisation. Of importance is whether it is up-to-date, and whether it provides useful information to the organisation. How this is done is defined by the Asset Management Plan.

As noted above, the efficacy of an organisation depends on an efficient asset management system. With regard to the Department of Water Affairs and Forestry, the issue of assets has contributed towards the Department's qualified audit report received in the 2005/06 and 2006/07 year. Although the Department embarked on an exercise to compile an adequate asset register, the extensive exercise and complexities facing the Department hindered major progress in this regard. One of the contributing factors being the challenge of matching the enormous asset base with its capacity constraints.

In reviewing the issue of asset management in the Department of Water Affairs and Forestry, this paper will provide an overview of the following:

•	Governance issues with regard to asset management.

•	Implementation of an asset management strategy by the Department - achievements and challenges.

3. Review of asset management in the Department

3.1 Governance issues

According to the National Treasury Regulations for departments, trading entities, constitutional institutions and public entities issued in terms of the Public Finance Management Act, 1999, the following needs to be adhered to with regard to asset management:

10.1 Responsibility for asset management [Section 38(1) (d) of the PFMA]

10.1.1 The accounting officer of an institution must take full responsibility and ensure that proper control systems exist for assets and that-

(a) Preventative mechanisms are in place to eliminate theft, losses, wastage and misuse.

(b) Stock levels are at an optimum and economical level.

10.1.2 The accounting officer must ensure that processes (whereby manual or electronic) and procedures are in place for the effective, efficient, economical and transparent use of the institution's assets.

10.2 Assets accruing to the state by operation of any law [Section 76 (2) (i) of the PFMA]

10.2.1 Where any money, property or right accrues to the state by operation of law (bona vacantia), the relevant treasury may exercise all powers, authority and prerogatives, and fulfil any obligation on behalf of the state.

3.2 Implementation of an asset management strategy by the Department - achievements and challenges

The inadequacies found in the existing assets registers by the Office of the Auditor-General led to the qualification (property, plant and equipment) of the Financial Statements for the Water Trading Account and an emphasis of matter (Asset and inventory management) on the Financial Statements of the Main Account Vote 34 for the financial years ending 31 March 2005, 2006 and 2007.

An asset management strategy developed in March 2006, implemented with limited success during 2006/07 to ensure that the Department was able to comply with all of the National Treasury's requirements, including

the Generally Accepted Accounting Principles (GAAP).	Thus far, the implementation of an asset

management strategy included a re-evaluation of all the Department's movable and immovable assets and the creation of assets registers.

With regard to immovable assets, the following was undertaken:

•	A Project Charter was approved for the 'enterprise-wide asset management system' (EWAMS). The goal of this project is to implement formal asset management throughout the Department to enable the Department to understand the scope and value of assets operated and maintained to support service delivery. It is hoped that, in this way, assets are responsibly captured soon after June 2008. The high level objectives of the project are to:

- Compile a comprehensive and accurate asset management system.

- Enable the Department to use the system as a decision support mechanism.

- Provide a basis from which the assets will be managed optimally over its entire life span.

- Provide a basis from which the cost of ownership can be determined.

- Support the sustainability of current and new schemes.

- Form an accurate basis from which raw water price determinations can be done.

A rigorous verification and valuation process was implemented during 2006/07 to ensure full verification and valuation of the Department's assets (both trading and main accounts). All movable assets verified have been allocated a unique bar code to enable tracking and identification.	.

With regard to moveable assets, the Department embarked on another exercise to compile a fixed asset register. Due to the extensive asset base and complexities facing the Department, this exercise was not completed adequately resulting in inadequate physical asset verification of asset and incorrect asset values. The following actions have been taken to resolve the audit query in future:

•	Forming an asset management committee with members from the region.

•	Developing an asset management policy (approved in April 2007).

•	Developing asset management strategies (approved in April 2007).

•	Developing asset management procedures and processes.

•	Training all asset officials, including finance officials on the basis of asset management learner guide developed by National Treasury.

•	Developing action plans per region to deal with challenges on asset management. The regional directors will take ownership and responsibility for asset management in their respective regions.

•	Conducting monthly reconciliations between assets register and financial systems.

•	Conducting a physical verification of asset in all offices and update the asset register.

•	Updating the asset register as and when the assets are procured.

Another project for the verification and valuation of major water infrastructure assets is the Enterprise Wide Asset Management System (EWAMS) initiated in 2007 for the verification and valuation of major water infrastructure assets, and the following project overview provides insight to the achievements and challenges in this regard

. The asset scope associated to the water resource infrastructure relate to the Integrated Water Schemes (TA2), Bulk Supply Schemes (TA3), Gauging Weirs, Support Services (workshop and administration buildings, houses, electricity, water supply, sanitation and roads), and associated land and servitudes.

The estimated extent of assets thus far comprises the following:

•	402 dams (47% value).

•	3.800 kms canals (27% value).

•	170 km tunnels (10%).

•	1.800 pipelines (13%).

•	76 pump stations.

•	18 treatment works.

•	71 reservoirs.

•	63 office buildings.

•	70 housing areas.

The organisational context relating to the transfer of major water infrastructure assets may lead to improved asset control with the establishment of the National Water Resource Infrastructure Agency (NWRIA)7, and transfers to Catchment Management Areas.

As part of the EWAMS process, the Department focuses on the following main deliverables to attain its objectives:

•	lAM training course.

•	Inception report, project management plan and communication plan.

•	Valuation methodology and approach.

•	Infrastructure asset management practices improvement plan.

•	AMIS user requirements and solutions recommendations.

•	Infrastructure asset management policy and procedures.

•	Technical and financial assessment reports.

•	Inputs into the tariff setting strategy.

•	Human resources plan and skills training.

•	Asset register.

•	Close-out report.

The following project risks have been noted with regard to the asset management plan:

The completion within a 12 month project period may pose a few problems such as:-

- The considerable extent of assets and the approach adopted thus far is to progressively drill into further levels of details to leverage existing asset knowledge.

- The instituting of pilot schemes, but tied to this one needs immediate access to DWAF information for it to be tested in pilots.

- The Department needs to have effective resources and an AMIS in place by project handover.

•	The delays in decision-making pose a further problem, which is exacerbated by the existing DWAF overworked staff, together with the pioneering nature of the work.

•	Organisational fit - due to uncertain timing and arrangements relating to the establishment of the NWRIA.

•	Compliance - the approach required to satisfying the Office of the Auditor-General and GIAMA are not well-established.

The progress to date of the plan encompasses the following:

•	Working group - working streams established and briefed.

•	lAM training (two 4-day sessions) held.

•	Requirements analysis workshop held.

•	Existing infrastructure asset management practices documented.

•	Accounting position (standards) established.

•	Draft inception report submitted.

•	Draft communications plan submitted.

•	Project management pan - 80% complete.

•	Interim project tool is being established.

•	Assessment of DWAF's existing IT infrastructure conducted.

•	Legal review in progress.

•	Asset hierarchy and level of detail of data collection approaching finality.

•	Draft filed guide being prepared.

•	Scope of 'known' assets being finalised.

•	Valuation approach and methodology reaching advanced stage.

•	Data collection at national level commenced.

•	Preparation in hand for pilot projects.

4. Conclusion

In summary, an Asset Management Plan is a document that helps an institution to answer the following questions:

•	What do we own and manage?

•	Are we meeting our customers' needs in the most sustainable, cost-effective manner?

•	Where are we now?

•	Where do we want to be in the future?

•	How are we going to get there?

Not only will an Asset Management Plan help to answer the above questions from a planning point of view, but the information in the plan will also help an institution manage its day-to-day activities in a sustainable, cost-effective and efficient manner.

DWAF, in adopting new strategies for asset management practices, maintains that the practices will have the following effects:

•	The project will impact across many aspects of DWAF's business.

•	It is pioneering in nature.

•	Success will depend substantially on a close working relationship of the PSP and DWAF DWAF and effective communication.

•	There are considerable project risks, and opportunities, which will need to be closely managed.

However, in the final analysis, the value-add of the project is substantial in terms of improved planning and operations, risk mitigation, and, ultimately, in improved service delivery.

References

National Treasury (2005) Treasury Regulations for departments, trading entities, constitutional institutions and public entities, issued in terms of the Public Finance Management Act, 1999, Republic of South Africa, March.

Water Research Commission, Asset management in the South African water services industry.

Department of Water Affairs and Forestry (2007), Presentation to the Portfolio Committee on Water Affairs and Forestry, Quarterly Finance Report, Parliament of the Republic of South Africa, 12 September.

Department of Water Affairs and Forestry (2007), Briefing to the Portfolio Committee on Water Affairs and Forestry on the Enterprise Wide Asset Management System (EWAMS): Verification and Valuation of Major Water Infrastructure Assets, Parliament of the Republic of South Africa, 11 September.