Reflections from our audits: Investment and asset management.

Investment and asset management are critical to New Zealand's future. Public entities are stewards of physical assets worth about $260 billion and financial assets worth about $145 billion. These assets provide essential services to New Zealanders. Public money must be wisely invested in these assets, if they are to continue to deliver services in the long term.

Engage more effectively with people

There are a range of challenges and opportunities that affect public sector assets. Challenges include natural hazards such as earthquakes, climate change, rising demand for some services, an ageing population, urbanisation, and infrastructure replacement coming in waves. Opportunities are presented from advances in technology that could change the way services are provided to New Zealanders.

We have previously reported our concerns about aspects of how physical assets (such as hospital and school buildings and water-related infrastructure) are managed. We have also become increasingly interested in financial assets (such as bank deposits, shares, and other marketable securities) because financial assets are an increasing part of the total assets managed by the public sector.

For these reasons, we used our work programme for 2015/16 to look at whether New Zealand is getting the best from its public assets. We looked at a range of topics to assess how well the public sector plans for, funds, manages, and maintains infrastructure and other assets to optimise long-term service delivery for New Zealanders.

Our work on investment and asset management has reinforced what is needed to make good decisions about investing in assets, and what needs to be done to manage assets well.

Take into account the whole life of assets

To make good investment decisions there needs to be effective engagement by public entities with the people receiving the services about the service levels they expect and the affordability of those expectations. We found that public entities could engage more effectively with people about these matters.

Public entities tend to have well-reasoned business cases for investing in assets, but the cases do not always take into account the whole life of the proposed asset. Also, public entities are not always thinking about whether their decisions to invest in assets are best for the public sector as a whole, including the expected benefits and how they will be measured.

Work co-operatively with other entities

Public entities should work co-operatively with other entities, where it is sensible to do so, to address the challenges and opportunities that can affect investment and asset management. This includes central and local government working more effectively together for the benefit of New Zealanders.

For many years our work has recognised that public entities are not managing their physical assets as well as they should be. There are indications that some physical assets risk being "run down", particularly in the health and local government sectors. In my view, the challenge of funding the maintenance and renewal of assets needs to be tackled if long-term service delivery is to be assured.

Often, better information is needed about the condition and performance of assets. The information needs to be analysed and used to monitor asset performance, and, in the case of physical assets, to make good choices and judgements about maintaining, renewing, and replacing assets to optimise the delivery of public services.

Without good reporting and information about assets, governors cannot make deliberate and informed decisions about how to invest in, and manage, the assets they govern.

Get better information about the condition of assets

Many public entities need to focus on improving their asset management and related systems, or use of their systems. Effective asset management requires an approach that is integrated with the operations of the public entity, where everyone involved has a shared understanding of what the assets are expected to deliver. Having the right information, systems, and people provides a foundation for managing assets well.

Public entities generally need to do better at measuring the performance of their assets and reporting information about assets to governors, so informed decisions can be made by those ultimately accountable for the delivery of services.

Our work on financial assets shows that public entities with significant investments in financial assets have reasonably good structures and systems for managing and governing those assets. However, at a whole-of-government level, thought needs to be given to financial asset risks and the challenges and opportunities that those risks present. In my view, there should be an overarching investment strategy for the Crown's financial assets. There is such a strategy for physical assets.

I encourage decision-makers to think about the matters raised in this report, including the questions we have posed about investing in and managing assets. It is clear to me that, although aspects of asset management are done well by some public entities, there are significant issues to be addressed and challenges to meet if public assets are to continue to deliver the services that New Zealanders expect over the long term.

Signature - GS

Greg Schollum
Deputy Controller and Auditor-General

21 July 2017