Disclosing Your Assets

Integrated TCA/AM Approaches

Henry de Jager

Karyn Smithard-CostanzoJune 11, 2007

2June 11 2007

Agenda

1. Pure PSAB TCA Requirements2. Why Integrated TCA/AM?3. Project Phasing4. Critical Success Factors5. SAP Presentation6. Questions

3June 11 2007

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

4June 11 2007

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

5June 11 2007

The Holistic Approach

Asset Depreciation and

Financing

Asset Degradation

and Rehabilitation

Asset Management

Asset Life Cycle Focused

Capacity & Operations

Asset Financial Management

Financial Sustainability, Balanced Budgets,

Expenditures Leveling, Cost of Service

Asset Data

Status & Condition

Asset Plans

6June 11 2007

Reasons for the Move to Tangible Capital Asset Reporting

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

8June 11 2007

TCA/AM Project Phasing

Phase One – Assess Current State/Research

Phase Two – Planning/Framework Development

Phase Three – Implementation of Integrated TCA/AM

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Phase Four – Continuous Improvement

9June 11 2007

Phase One –Steps to Implementation

Inventory

Valuation

Depreciation

Manage

•Classification, segmentation, aggregation

•Estimated useful life

•Materiality

•Historical cost

•Replacement cost

•Appraisals

•Units of output/service

•Declining balance, Straight line, Residual value

•Additions, Disposals, Write downs

•Budgets, Reporting

Standard Hierarchy, AM Framework, Policies/Standards,

degree of integration, system requirement & project impacts

10June 11 2007

SystemsWhat systems are currently used? Any possible consolidations?

What new projects are currently underway that will track AM inventories?

How will the information be used to provide financial management information, to meet accounting requirements, to tie into budgets?

Processes, Policies, Practices

Thresholds/Materiality

Classification, segmentation, aggregation

Data/InformationWhat data is currently available?How will the gaps be addressed?How to inventory network assets?What level of detail should be tracked?What process changes will be required to the information we receive from contractors?How will coding of capital POs an invoices change?How will data be structure during transition?

Organization

Who in the organization will be responsible for inventorying assets? (Centralized, decentralized?)

Inventory

11June 11 2007

Systems

Are the current systems capable of maintaining the replacement and historical costs?

Processes, Policies, Practices

Historical, replacement, appraisals

Defining capital costs

Data/Information

What valuation approach should be used when historical cost information is unavailable?

Organization

Will this be managed centrally or within each department?

Who will maintain replacement values – Operations or Finance?

Valuation

12June 11 2007

Systems

Can the current systems meet the Region’s policies with respect to depreciating assets?

Will all assets be depreciated by SAP or will we allow other systems to calculate depreciation and pass it back to SAP?

Processes, Policies, Practices

Declining balance

Straight line

Others

Data/Information

Is there sufficient detail on usage patterns to determine the most appropriate depreciation methodology?

Organization

Depending on the level of complexity desired as part of the vision, are there sufficient staff resources to manage the depreciation methodology?

Depreciate

13June 11 2007

Systems

Which systems will be used to support the management policies and processes?

What are the system implications of the policy decisions and what upgrades will be required?

Processes, Policies, Practices

Financial Reporting, Budgets, Risk Management, Rate Calculations, Cash Planning, Performance Reporting

Additions, Disposals, Write-downs

Data/Information

For insurance purposes, how will risk management be notified of new assets, asset dispositions or changes in asset valuations?

Organization

Is there capacity to undertake periodic inspection programs to complete condition assessments?

Manage

14June 11 2007

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

15June 11 2007

Phase Two – Planning/Framework Development

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

16June 11 2007

Five Elements of Integrated TCA/AM

Practices

Processes

Data and Records

Information Systems

Organization and People

23June 11 2007

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.

24June 11 2007

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

25June 11 2007

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

26June 11 2007

Achievement - AFM Framework - Policies - Thresholds

Asset Class ThresholdLand $0 (capitalize all)

Land Improvements $10k

Buildings & Building Improvements $10k

Leasehold Improvements $10k

Machinery & Equipment $5k

Vehicles $5k

Linear Assets $50k

27June 11 2007

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)

28June 11 2007

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

29June 11 2007

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

30June 11 2007

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

31June 11 2007

Phase Three Next Steps – Determine Level of Detail for AFM

What We Know What We Need to ConfirmFinancial Classification for Financial Statement Note

Level of Detail for Asset Accounting Register

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

36June 11 2007

37June 11 2007

TCA SAP Solution Architecture

Maintains Inventory

Synchonizes Inventory

Display reports and graphs

Portal

Prepares PSAB Reports

Creates lifecycle for each asset

RIVA

Financial Staff

DecisionMakers

Intranet

Intranet

BI

Process Engine

SAPAsset Info

Syn

chro

nize

Third-Party

Inventory

Read inventory and attributes

Synchronize

38June 11 2007

Critical Success Factors

1. Clear definition of scope, multi-year vision and priorities2. Stakeholders buy-in

a. CAO & Senior Management support b. Departmental management support

3. Resource commitments a. Access to the right resources as requiredb. Central coordination/prioritization of resources (IT &

departmental)

4. Effective inter-project Communication5. Funding