Tangible Capital Assets

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					Disclosing Your Assets
 Integrated TCA/AM
 Approaches



                      Henry de Jager
             Karyn Smithard-Costanzo
                          June 11, 2007
             Agenda

1.   Pure PSAB TCA Requirements
2.   Why Integrated TCA/AM?
3.   Project Phasing
4.   Critical Success Factors
5.   SAP Presentation
6.   Questions




                        June 11 2007   2
              Pure PSAB TCA Requirements
As a minimum PSAB requirements include:
By 2010 (in time for 2009 financial statement preparation):
     – Establish policies & thresholds for TCA‟s
     – Compile inventory of all tangible capital assets that meet definitions/thresholds
        including:
          • Historic cost
          • Acquisition/in service date
          • Useful life
          • Residual value
     – Amortize assets
     – Categorize assets
     – Calculate annual additions, disposals, amortization for each asset category
     – Calculate value of Assets Under Construction (Work-in-Progress)
     – Modify financial statements to present Tangible Capital Assets (along with
        other required PSAB changes)
     – Present budgeted information in the financial statements calculated on a
        consistent basis as actuals




                                                         June 11 2007                  3
                Why Integrated TCA/AM?
•   Timing of Asset Management Projects and PSAB requirements
     • Enhancements to existing AM systems for fleet and Plants
     • New AM requests for Long Term Care, Social Housing, and Facilities Management
•   Create common vision for Integrated TCA/AM across the corporation
•   Meet PSAB requirements
•   Create an implementation strategy 2007-2012
•   Define what the operating fund, capital fund, reserve fund, balance sheet
    statements will look like
•   Define what the operating and capital budgets will look like
•   Create consistent definitions, policies and terminology for Asset
    Management and Asset Financial Management
•   Ensure consistent accounting treatment of asset-related expenditures
•   Improve understanding of asset accounting processes by all stakeholders
•   Provide a consistent framework for making decisions
•   Create a „first step‟ to building a corporate asset management program
•   Effectively implement and enhance systems to support Integrated TCA/AM




                                                    June 11 2007                       4
                            The Holistic Approach
   Asset                                                                          Asset
Degradation                                                                    Depreciation
    and                                                                       and Financing
Rehabilitation


                    Asset           Asset Data       Asset Financial
                  Management         Status &         Management
                 Asset Life Cycle    Condition    Financial Sustainability,
                    Focused         Asset Plans     Balanced Budgets,
                                                  Expenditures Leveling,
                   Capacity &
                                                      Cost of Service
                   Operations




                                                     June 11 2007                     5
  Reasons for the Move to Tangible Capital
              Asset Reporting

• Quantifying the Infrastructure Gap
• Planning
• Stewardship
• Accountability
• Program Costing




                            June 11 2007     6
             TCA/AM Project Phasing

Phase One – Assess Current State/Research

Phase Two – Planning/Framework Development

Phase Three – Implementation of Integrated
 TCA/AM
-----------------------------------------------------
Phase Four – Continuous Improvement


                                      June 11 2007      8
Phase One –Steps to Implementation
     Standard Hierarchy, AM Framework,
             Policies/Standards,
            degree of integration,
    system requirement & project impacts
                                           •Classification, segmentation, aggregation
               Inventory                   •Estimated useful life
                                           •Materiality

                                           •Historical cost
               Valuation
                                           •Replacement cost
                                           •Appraisals

            Depreciation                   •Units of output/service
                                           •Declining balance, Straight line, Residual value


               Manage                      •Additions, Disposals, Write downs
                                           •Budgets, Reporting




                                                         June 11 2007                9
Inventory
                                               Data/Information
 Processes, Policies, Practices                What data is currently available?
                                               How will the gaps be addressed?
 Thresholds/Materiality                        How to inventory network assets?
                                               What level of detail should be tracked?
                                               What process changes will be required to the
 Classification, segmentation,                 information we receive from contractors?
 aggregation                                   How will coding of capital POs an invoices
                                               change?
                                               How will data be structure during transition?


Systems                                        Organization
What systems are currently used? Any possible Who in the organization will be responsible
consolidations?                               for inventorying assets? (Centralized,
    What new projects are currently underway decentralized?)
    that will track AM inventories?
    How will the information be used to
    provide financial management
    information, to meet accounting
    requirements, to tie into budgets?

                                                           June 11 2007                 10
Valuation

 Processes, Policies, Practices               Data/Information


 Historical, replacement,                     What valuation approach should be used
 appraisals                                   when historical cost information is
                                              unavailable?

 Defining capital costs


 Systems                                      Organization


 Are the current systems capable of           Will this be managed centrally or within
 maintaining the replacement and historical   each department?
 costs?                                       Who will maintain replacement values –
                                              Operations or Finance?




                                                          June 11 2007                   11
Depreciate

 Processes, Policies, Practices                  Data/Information
 Declining balance                               Is there sufficient detail on usage patterns to
                                                 determine the most appropriate depreciation
 Straight line
                                                 methodology?
 Others




 Systems                                         Organization
 Can the current systems meet the Region‟s       Depending on the level of complexity desired
 policies with respect to depreciating assets?   as part of the vision, are there sufficient staff
                                                 resources to manage the depreciation
 Will all assets be depreciated by SAP or will   methodology?
 we allow other systems to calculate
 depreciation and pass it back to SAP?




                                                             June 11 2007                     12
Manage

Processes, Policies, Practices                Data/Information
                                              For insurance purposes, how will risk
                                              management be notified of new assets,
Financial Reporting, Budgets, Risk            asset dispositions or changes in asset
Management, Rate Calculations, Cash           valuations?
Planning, Performance Reporting
Additions, Disposals, Write-downs



 Systems                                      Organization


 Which systems will be used to support the    Is there capacity to undertake periodic
 management policies and processes?           inspection programs to complete condition
                                              assessments?
 What are the system implications of the
 policy decisions and what upgrades will be
 required?



                                                         June 11 2007                  13
                 Phase One Overview
Achievements:
• Gained understanding of asset information available for
  Integrated TCA/AM
• Assessed current state of AM in each business
• Identified AM systems currently used
• Researched other governments‟ approaches to TCA
  implementation
• Assisted OMBI pilots/development of OMBI Guide V2
Outcomes:
• Established basis for developing corporate policies &
  standards for AM & AFM
• Established basis for determining level of detail to use in
  the asset accounting register for each business
                                        June 11 2007            14
     Phase Two – Planning/Framework
              Development

• Planning Principles
   – Sustainable
   – Strategic
   – Balanced
   – Community Focused
   – Informed



                         June 11 2007   15
Five Elements of Integrated TCA/AM

                   Practices

                  Processes

               Data and Records

              Information Systems

            Organization and People



                               June 11 2007   16
  Phase Two Outcome – Halton’s Vision for
            Integrated TCA/AM

Halton Region‟s infrastructure supports
 sustainable, prosperous communities by
 providing environmentally sound services
 that meet community expectations within
 an integrated, transparent and
 accountable framework.



                           June 11 2007     23
Achievement – AFM Framework - Definitions


“Infrastructure” - Tangible capital assets
 that are composed of linear assets and
 their associated specific components,
 generally constructed or arranged in a
 continuous and connected network.
 Includes: Transportation,
 Water/Wastewater/Storm Water Linear &
 Treatment Plants

                            June 11 2007     24
   Achievement - AFM Policies – Definitions

“Capital Betterment” costs improve or extend
 the future economic benefits of the assets in
 excess of that originally assessed. Service
 potential is enhanced if one of the following
 occurs:
  – There is an increase of 10% or more in the previously
    assessed physical output or service capacity;
  – Associated operating costs are lowered by at least 10%;
  – The original useful life is extended by at least 10%; or
  – The quality of output is improved




                                           June 11 2007        25
   Achievement - AFM Framework - Policies -
                 Thresholds
           Asset Class                           Threshold
Land                                $0 (capitalize all)
Land Improvements                   $10k

Buildings & Building Improvements   $10k

Leasehold Improvements              $10k

Machinery & Equipment               $5k

Vehicles                            $5k

Linear Assets                       $50k




                                               June 11 2007   26
                 Phase Two Accomplishments
• Surveyed 15 other Canadian municipalities to understand their TCA project
    approach and status
•   Participated in OMBI Reporting Guidelines
•   Continue to participate in OMBI Reporting Subcommittee
•   Chairing working group meetings with our local municipalities
•   Determined high level roadmap for a SAP AFM solution
•   SAP consultant reviewed our current SAP structure, gained an understanding
    of our objectives for TCA and educated key Halton financial and I&IT staff on
    SAP modules available to support AFM
•   SAP consultant provided high level solution structure/work plan for a SAP with
    recommendations for integration with AM systems, capital project mgmt
    systems, and corporate AM/AFM reporting tool
•   Reviewed AM/AFM data requirements (based on best practices). Can be
    used to structure integrated AM/AFM reporting tool (SAP BW)




                                                     June 11 2007              27
    Phase Three Implementation Priorities

2007:
   – Development of a plan for each program (including level of
     detail, operational needs, criticality)
   – Begin AFM PSAB data collection (to be completed Q1 2008)
   – Development of common asset repository software solution
     structure
   – Begin Integrated TCA/AM education
   – Confirm AFM asset definitions/thresholds
   – Align AM strategies
   – Begin determination of financial impacts of PSAB
   – Development/implementation of Governance structure




                                          June 11 2007            28
Phase Three & Four Implementation Priorities

2008:
   – Complete AFM PSAB data collection (Q1)
   – Complete determination of financial impacts of PSAB on
     budgets, rates, tax levies
   – Develop a long range financial plan by business area
   – Complete implementation of basic systems for each business
   – Define service levels, KPI‟s, risk

2009:
   – Revise the long range financial plan
   – Continue to develop AM plans for businesses




                                         June 11 2007             29
             Phase Three – Next Steps
• Identify the Team Leaders for each program
• Hire consultants/contract staff
• Educate teams
• Determine Level of Detail to use in Accounting Register
  (2009 & ideal state)
• Identify resources to inventory/value assets
• Inventory/value assets
• Depreciate assets
• Assess financial impacts
• Implement SAP/RIVA AFM solution
    – Basic
    – Automated



                                      June 11 2007          30
  Phase Three Next Steps – Determine Level of
                Detail for AFM
   What We Know                     What We Need to Confirm
Financial Classification for   Level of Detail for Asset Accounting Register
Financial Statement Note
General Cap. – Buildings       •Structural Elements
                                    –Foundation
                                    –Interior structural walls
                                    –Exterior doors & windows
                                        •Windows
                                        •Curtain walls
                                        •Etc.
                                   –Roofing
                                        •Roof coverings
                                        •Skylights
                               •HVAC System
                               •Plumbing
                               •Fire Protection


                                                          June 11 2007         31
June 11 2007   36
              TCA SAP Solution Architecture


                                                            Asset Info

                                             BI                             SAP
Financial Intranet                      Prepares PSAB                      Maintains
                                           Reports                         Inventory
  Staff
                        Portal




                                                                               Synchronize
            Intranet
                                                                                                                Third-
                                                                                             Read inventory
                                                           Synchronize
                                                                           Process           and attributes     Party
                                          RIVA                             Engine                             Inventory
                       Display reports Creates lifecycle                  Synchonizes
                         and graphs     for each asset                     Inventory
Decision
Makers


                                                                         June 11 2007                              37
                  Critical Success Factors


1. Clear definition of scope, multi-year vision and priorities
2. Stakeholders buy-in
       a.   CAO & Senior Management support
       b.   Departmental management support
3. Resource commitments
       a.   Access to the right resources as required
       b.   Central coordination/prioritization of resources (IT &
            departmental)
4. Effective inter-project Communication
5. Funding




                                                  June 11 2007       38