Annual Report 2004-05

Asset Management

Defence manages some $54 billion in assets. This includes some $31 billion in specialist military equipment and $11 billion in land and buildings assets, as well as 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. In December 2004, information technology was transferred to the Chief Information Officer. 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 the Finance Minister's Orders.

Defence requires these assets to be managed and recorded in accordance with the Australian National Audit Office Asset Management Handbook published in 1996. A key objective of the framework is to assist Defence 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:

• integrating asset planning, management and disposal decisions into corporate planning processes;
• ensuring that asset planning decisions are based on the 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.

2004-05 Achievements

Defence has moved towards a more comprehensive approach to its asset management and continues to further improve upon strategic asset management initiatives. It has improved the integration of key elements such as whole-of-life planning, procurement, and financial management aspects to maximise its asset management deliverables such as readiness and timeliness of asset delivery, optimal stock holdings and best value for money. A strengthened planning, estimation, risk assessment and approval process (prior to acquisition) has refined and improved the asset acquisition process, including whole-of-life costs and delivery aspects. This will continue to provide improved management of asset acquisitions. Of particular note is the Defence Capability Committee's annual review of planned withdrawal dates of major ADF assets. These decisions are reflected in the financial records of Defence by subsequent revaluation and re-lifing of assets where appropriate to foster informed decision making, particularly surrounding the replacement of major specialist military equipment platforms.

A new financial control framework is in the process of being implemented to ensure asset accounting difficulties are addressed at their root cause, and that timely remediation plans are put in place to correct major deficiencies. The implementation of remediation plans has improved asset financial reporting in the 2004-05 financial year. The continued implementation of these plans will provide ongoing improvements into the 2005-06 financial year.

During 2004-05 specialist military equipment was reviewed for impairment and useful lives assessed to unprecedented levels. Work also continued on consolidating the recording of all assets into Defence's primary asset register (ROMAN), including decisions arising from the Defence Capability Committee reviews. All of these activities have led to the improved accuracy and completeness of the asset records, facilitating better informed decision making, particularly where key asset investment and divestment decisions are involved.

During the 2004-05 financial year, Defence undertook to revalue 100 per cent of the non-specialist military equipment assets. The task saw some 27,000 land, building and infrastructure assets and some 31,000 other plant and equipment assets reviewed and the revaluations applied. As part of the revaluation activity the assets were assessed for their heritage and cultural significance. Land, building and infrastructure assets will continue to be progressively revalued on a three year cycle.

Management of leases is being improved with the development 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.