Asset Management
Defence manages some $55.0 billion in assets. This comprises some $32.0 billion of specialist military equipment, $11.1 billion of land and buildings, $5.7 billion of infrastructure, plant and equipment, $4.0 billion of inventories, $0.7 billion of heritage and cultural assets, $0.3 billion of intangibles and $1.2 billion of other assets such as cash, receivables and prepayments.
In accordance with Section 44 of the Financial Management and Accountability Act 1997, the Chief Executive of Defence (the Secretary) has a responsibility to manage assets in a way that promotes efficient, effective and ethical use of Commonwealth resources. In applying the requirements of the Act and the Finance Minister's Orders, Defence's asset management framework is governed by Chief Executive Instructions, Defence Instructions, Defence Reference Books (for accounting policy) and external guides such as the Asset Management Handbook published by the Australian National Audit Office (ANAO). Areas of Defence with particular asset management responsibilities also operate within specialised asset management policies and procedures that complement the broader asset management framework.
The establishment of the DMO as a separate and prescribed agency has reinforced key elements of the Defence asset management framework in 2005–06. For instance, while Defence reports major non-financial assets on its balance sheet, the DMO acts as a project manager on behalf of Defence for both the acquisition and sustainment of Defence military assets and inventories under Materiel Acquisition and Sustainment Agreements respectively. Under these agreements with Defence, the DMO provides acquisition services for major and minor capital equipment and sustainment services such as repair and maintenance, engineering, warehouse management, stocktaking, disposal action and accounting services. Details of the relationship with the DMO are provided in the appendices of the Defence Annual Report 2005–06—Volume Two.
2005–06 Achievements and Developments
Successful progression of the financial statements remediation plans during 2005–06 resulted in a number of improvements in asset management and reporting in Defence, particularly in relation to resolving asset valuation issues, and improving system and business process controls.
Guided by financial statement position papers, Defence achieved the following outcomes:
- Completion of revaluations of information, communication and technology assets.
- Substantiation of the pricing basis for explosive ordnance, including lower cost and replacement cost data, that resulted in an elimination of the prior years' pricing uncertainty.
- No audit uncertainty with respect to explosive ordnance quantities.
- Reduction of approximately $1 billion in the uncertainty of specialist military equipment repairable items due to a significant verification exercise.
- Revised treatment under AIFRS of the provision for general stores inventory obsolescence as an adjustment to approximate replacement cost.
- Development and implementation of improved Standard Defence Supply System (SDSS) inventory management controls for use in 2006–07.
- The recognition of appropriate provisions for liabilities associated with land decontamination and restoration and specialist military equipment decommissioning.
- A comprehensive review of asset purchases and the application of capitalisation thresholds.
- Improved recognition of finance lease assets and liabilities.