Annual Report 2003-04

Asset Management

Defence manages about $52 billion in assets including about $30 billion in specialist military equipment and $10 billion in land and buildings assets. Other assets under Defence's management include infrastructure, plant and equipment (about $5 billion), inventories (about $4 billion), intangibles, and heritage and cultural assets.

In 2001, the then Secretary assigned asset management and accounting responsibilities to various executives in the organisation. For example, the then Under Secretary Defence Materiel Organisation was assigned responsibility for the management and reporting of specialist military equipment assets (including Repairable Items) and inventory. The Deputy Secretary Corporate Services was assigned responsibilities for land, buildings, infrastructure, property, information technology and administration assets. These executives are responsible for valuing, stocktaking, recording and reporting these assets in accordance with the requirements of the Financial Management and Accountability Act 1997, and Finance Minister's Orders.

Defence requires that these assets be managed and recorded in accordance with the Australian National Audit Office Asset Management Handbook, published in 1998. A key objective of the framework is to assist the department in complying with Section 44 of the Financial Management and Accountability Act 1997 which specifies that the Chief Executive is responsible for promoting the efficient, effective and ethical use of resources.

Since 2001 Defence has continued to develop and improve the asset management framework focusing on:

• the integration of asset planning, management and disposal decisions into corporate planning processes;
• ensuring that asset planning decisions are based on evaluation of alternatives, including life-cycle costs, benefits and risks of ownership;
• and assigning responsibility and accountability for asset management policy development, accounting and reporting.

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2003-04 Achievements

The asset acquisition process, including whole-of-life costs, has been refined through a strengthening of the planning, estimation, risk assessment and approval process prior to acquisition. This will provide improved management of asset acquisition, including cost and delivery delay aspects. The Defence Capability Committee reviews, on an annual basis, the planned withdrawal dates of ADF assets and this informs the asset relifing and revaluation process.

Work continues to consolidate the recording of all assets into Defence's primary asset register, the Resource and Output Management Accounting Network, and this has led to improved accuracy of records and support of decision making especially key asset investment and divestment decisions. Land, building and infrastructure assets continue to be progressively revalued on a three-year cycle by the Australian Valuation Office.

Work continued on inventory management and repairable items to address Australian National Audit Office concerns. Remediation plans have been put in place and enhancements to the Standard Defence Supply System will bring about improvements. Supply Customer Accounts that record holdings of repairable items on the Standard Defence Supply System have been subject to review as part of a Defence Materiel Organisation strategy to verify all fixed assets recorded in that system. A significant amount of work has been undertaken and although some improvement has been made, further work is progressing and areas of uncertainty still remain. The upgrade of the supply system in July 2003 assisted in maintaining the accuracy of these holdings.

Notwithstanding progress to date, more remains to be done. This is an extensive task which is likely to take some time to complete.

Management of leases has been improved with the creation of a centralised lease register and a process for review of classifications and values. Leases represent forward commitments for Defence and the Commonwealth. They can act as an alternative financing vehicle for assets and may involve the sale and leaseback of an asset previously owned by Defence.

In 2004-05, more focus will be applied to balance sheet reporting with increased involvement by the Defence Committee. A new financial control framework will be implemented to ensure asset accounting difficulties are addressed on a regular basis at their root cause, and remediation plans have been put in place to correct major deficiencies. This work will be complemented by the due diligence work associated with creating the Defence Materiel Organisation as a prescribed agency from 1 July 2005.

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