Case study 4.2

Asset management for public entities: Learning from local government examples.

Organisation B – Unreliable and missing information undermines the basis for future plans

This organisation has inadequate underlying information to support the forecast expenditure included in its long-term planning for assets such as its water supplies, sewerage, solid waste, and stormwater activities. In some instances, its forecast information was inconsistent with the underlying information, and asset management plans did not exist.

As a result, the forecasts of capital expenditure and operating expenditure, including the estimates of depreciation, could be materially misstated. Also, because the forecast expenditure on its infrastructure is not supported by adequate asset management plans, the organisation has been unable to demonstrate that the forecast expenditure will deliver the desired levels of service.

As a result, the information in the prospective financial statements is not supportable, and has not been based on the best information reasonably expected to be available. This is a departure from Financial Reporting Standard No. 42: Prospective Financial Statements, which requires prospective financial information to be prepared on the best information available.

The organisation is unable to demonstrate, as required by section 101 of the Local Government Act 2002, that it is managing its revenues, expenses, assets, liabilities, investments, and general financial dealings prudently and in a manner that promotes the current and future interests of the community.