PSAB 3150 First Steps to Compliance

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PSAB 3150 First Steps to Compliance
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Introduction

• Presenters
• Derek Locke, Diamond Municipal Solutions
• Wanito Bernadin, WorkTech Inc
• Chris Majewski, Pacific Alliance Technologies
• Agenda
• Introduction
• PSAB 3150 Putting things in perspective
• First Steps Building your action plan
• A case study in execution County of Lanark,
  Ontario
• Technology Utilization
• QA

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Overview of PSAB 3150

• CICA study in 2003 led to PSAB 3150 accounting
  standards and guidelines in 2006
• There is now a transition period to allow
  municipalities to develop appropriate accounting
  reporting systems
• Municipalities will have to account for report
  tangible capital assets in their financial
  statements beginning in 2009, with 2008 as the
  year for comparison

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Overview of PSAB 3150

• Governments need to present information about
  their tangible capital assets and amortization in
  their financial statements to demonstrate
  stewardship and the cost of using those assets to
  deliver programs and provide services.
• BY 2009, all municipalities must
• Determine Historical Cost Residual Value on all
  capital assets
• Determine Useful Lives of assets
• Calculate depreciation expense for all assets
• Cost Residual Value / Useful Life
• Record the Net Book Value of Tangible Assets on
  the Balance Sheet
• Cost less Accumulated Depreciation
• Record Depreciation as an Expense on the Income
  Statement

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Two Components

• ASSET ACCOUNTING
• Accounting visibility for comparison
  consumption
• Historical cost basis
• Write Downs (Impairment) Improvements
• Amortization Expense Reflect Use Of Govt
  Resources To Provide Services
• ASSET MANAGEMENT
• Planning for Infrastructure maintenance growth
• Good capital planning is critical to the long
  term viability of the municipality
• Replacement cost Stewardship

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Unresolved Questions

• Budget Presentation
• Accrual vs Cash (or both?)
• Municipal Act changes regarding balanced budget?
• Fund Accounting will it continue?
• Audit Implications
• Thresholds/Materiality
• Asset Categories Depreciation Methods
• Financial Statement Presentation

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Are We Prepared ?

• Results from GFOA BC Survey Report of PSAB 3150
  Preparedness
• September 2006
• Only 34 of Municipalities indicated they were
  reasonably familiar with PS3150
• Few municipalities indicated that they have good
  information on original cost
• Information on the condition and useful life was
  also generally lacking with only 9 in roads, 4
  in storm water and 8 in sanitary sewers
  indicated they have good information

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Are We Prepared ?

• Results from GFOA BC Survey Report of PSAB 3150
  Preparedness - Comments
• September 2006
• We are currently understaffed and do not have
  budget dollars to add staff. Hard to justify tax
  increase for an accounting exercise
• We do not have good fixed asset records. Also I
  am not sure whether our existing accounting
  system can handle the new requirements
• No records kept since inception, most assets are
  old. Staff turnover has been high so we don't
  even have staff who might be able to answer
  questions

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Are We Prepared ?

• Results from GFOA BC Survey Report of PSAB 3150
  Preparedness Mind-set
• September 2006
• As with most things coming from CICA, this is an
  exercise which produces nothing of value and
  results in an inordinate amount of work
• It has been difficult to get approval to
  increase budget dollars to do this project when
  there are other priorities for those dollars that
  have a higher impact to the public

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Why are we doing this?

• Increased stress on our current Infrastructure
  Infrastructure Gap
• Decreased ability to generate funding and find
  resources to replenish our infrastructure
• Lack of visibility awareness
• Amortization is intended to reflect the true
  utilization (benefit) of an asset over its
  useful life. Visibility is the key to managing
  asset repair, maintenance and replacement more
  effectively.

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Increased Stress - The Infrastructure Gap

• Canada's infrastructure gap is estimated to be
  between 50 billion and 125 billion, which is
  6-10 times the level of all current annual
  government infrastructure budgets combined
• If the current level of infrastructure
  under-investment is allowed to continue in
  Canada, the deficit could balloon to 1 trillion
  in 60 years
• Deferring maintenance (or not performing repairs
  at all) leads to much higher rates of
  deterioration and repair bills that can equal the
  cost of the original asset

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Increased Stress - The Infrastructure Gap

• Aging Infrastructure
• across all areas
• Roads
• Water / Wastewater
• Hospitals / Schools
• Transit
• We have already used 79
• of our infrastructure's life
• expectancy (1)
• (1) The Canadian Society of Civil Engineering,
  "Civil Infrastructure Systems
• Technology Roadmap 2003-2013" (June 2003)

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Decreased Resources - Employees

• We are getting older and birth rates cannot
  sustain productivity growth!
• Consultancy Watson Wyatt forecast this year that
  if economic growth continues at around current
  rates of 3, Canada could face a shortage of 1.2
  million workers by 2020.
• Statistics Canada estimates the population aged
  50 to 64 years will increase by 27 per cent
  between 2006 and 2021.
• An older population is more reliant on
  Infrastructure!

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Decreased Resources - Funding

• How can governments allocate the necessary
  funding to maintain and extend infrastructure?
• Limited revenue sources for municipalities Tax
  base
• Federal Gas Tax Rebates Provincial programs /
  funding are insufficient
• Replacement values exceed funding

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Lack of Visibility Is there a problem?

• As with most things coming from CICA, this is an
  exercise which produces nothing of value and
  results in an inordinate amount of work
• It has been difficult to get approval to
  increase budget dollars to do this project when
  there are other priorities for those dollars that
  have a higher impact to the public

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Lack of Visibility Perception vs Reality

• Do you have information on material improvements
  (date, amount spent, extension of useful life)?
• No Information 14 Complete Information 9
• Do you have information on the condition and
  useful life (original estimate and remaining
  life) of your assets?
• No Information 21 Complete Information 6
• Do you have tracking systems in place to allow
  you to record such information for assets that
  are acquired or constructed in future years?
• No Systems 40 Comprehensive Systems 3
• Do you have information on the replacement costs
  of your tangible capital assets?
• No Information 30 Good Information 12

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So why are we really doing this?

• There is a problem that needs to be addressed
• One of our primary responsibilities is management
  of infrastructure!
• Council needs to understand the importance of
  infrastructure as a component of service delivery
• Awareness leads to Accountability
• Federal Provincial government need to put in
  place improved funding programs
• Making good decisions requires good information

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So where are we then?

• This is going to happen Municipalities need
  help across multiple areas
• Funding Resources
• Clarification of the standard
• Strategy Implementation
• How to categorize assets
• Depreciation methods to be used
• How to assign original value, useful life,
  residual value, replacement value
• Financial reporting implications
• How / Where to begin

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Case Study in Compliance

• The County of Lanark, Ontario
• Began Asset Inventory Management (AIM) project
  in 2006 and have been working towards PSAB 3150
  compliance since that time
• Estimated cost 151,591.00
• Timeframe 36 months still on-going
• Impact Lanark will be ready to operate under
  the standard and will have a comparison year in
  2008 which will be mirrored against the actual
  results reported in 2009.

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Case Study in Compliance

• Steps
• (1) Made the business case to council and
  provided project costing information in order to
  secure funding
• (2) Created a project team to educate staff and
  champion the project internally
• (3) Worked in phases and broke down into
  manageable chunks
• - This is a marathon, not a race
• (4) Analyzed technology utilization mapped
  out a strategy to build processes into their
  software and acquire what they did not have
• (5) Documented policies mapped procedures

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Case Study in Compliance

• Steps
• (6) Recognized that the plan had to address
  go-forward asset acquisitions, disposals
  management in addition to historical catch up
  scenarios
• (7) Understood that the impact of this
  initiative would be pervasive across the
  organization Training of employees built in to
  plan
• (8) Made decisions based on GAAP on how to
• Classify assets into categories
• Assign Original values (even without
  documentation)
• Allocate depreciation methods

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Building the business case

• The AIM Project will enhance three (3) of the
  Countys core strategies
• To understand, enhance and promote the Countys
  best assets in support of economic and
  development initiatives.
• To utilize, where appropriate County Vision 2025
  and the County Strategic Plan to help guide
  planning and decision making, and manage growth.
• To plan and provide services and infrastructure
  in synch with growth and ensure that growth is
  sustainable across the County.

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Building the business case

• By implementing the AIM project, managers will be
  more informed on what they have for assets and
  the books will more accurately reflect the cost
  of doing business. The AIM Project will provide
  better purchase planning and make it easier to
  know when assets need to be replaced, as well as
  how to allocate the funds. The AIM Project will
  therefore, help in sustaining future growth and
  success of the County. For example, with Asset
  Management fully implemented, Managers will be
  able to accurately forecast replacement of
  current assets in future years.

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TOTAL PROJECTED COST 151,591
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Components of Costing Proposal

• Project plan, policies and set up
• Category and Number of Assets take a sample to
  determine population
• Determine time required to capture asset details
  (e.g. description, age, historical cost (or
  valuation method), depreciation of classes of
  assets)
• Identification of areas where outside consultants
  required
• Data capture methods, hours and technology
• Research time
• Training staff

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Technology Utilization
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Process Mapping
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Asset Management

• At MFOA, we will be encouraging municipalities
  to design their asset databases in such a way
  that they will serve a dual purpose to allow
  PSAB compliance as well as act as the foundation
  for a comprehensive asset management plan. An
  important opportunity will be lost if a
  municipality does the bare minimum to comply with
  PSAB and continues to have little or poor
  information about its assets for the purposes of
  long-term financial planning. As a result, we
  will be linking PSAB compliance with the broader
  issue of asset management and will encourage
  municipalities to put in place information
  systems with regard to assets that will assist
  senior management and Council to build and
  maintain assets in a planned and systematic
  fashion.

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Asset Management Focus

• Regular scheduled condition assessments
• New construction planning, execution and costing
• Capital improvement (betterment) planning,
  execution and costing
• Preventive maintenance planning, execution and
  costing
• Life-cycle costing and performance modeling
• Geospatial enablement (GIS)

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Asset Management Tools
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Asset Management Tools
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GIS Integration

• Better and quality decision making for planning,
  construction and maintenance
• Bi-directional integration with AM tools.
• Location of the asset.
• Spatial relationships of asset information.
• Different reporting method.
• Leverage existing systems.

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Challenges Lessons Learned

• Need Corporate Buy-In why are we doing this?
• Not just an Accounting exercise Management
  information
• Make decisions on how to apply the standard
• Need to consider Resources
• Competencies
• Lack of resources and Cost additional staff, IT
  etc.
• Potential increased audit and consulting fees
• All staff will have enhanced accounting
  responsibilities
• Create Process Documentation
• You are building a new business process!
• Factor in On-going Maintenance Interim
  Accounting of Assets
• Engage your auditors or consultative help

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What should you be doing today?

• Education
• What resources are available to help Ask your
  Auditor
• Communication
• Build the business case to Councils and Staff
• Form Project Steering Committee
• Champion the project throughout the municipality
• Develop a Phased Project Charter
• Include timelines and resources costs
• Develop Business Processes Accounting Policies
• Map them to your technology
• Determine technology requirements
• Asset Accounting Asset Management components

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AndWork with Partners

• Associations support groups (EOTA Ontario)
• Auditors, consultancies, Data collection agencies
• Local Universities Colleges
• Technology Partners
• Diamond Municipal Solutions
• Asset and financial accounting
• WorkTech
• Asset and work management
• Pacific Alliance
• GIS enabled asset management

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Resources

• Diamond will be posting a PSAB resource base on
  our website in early December
• www.diamondmunicipal.com
• OMBI Ontario Municipal Benchmarking
• White paper on PSAB compliance
• Second White paper in FY 2007
• Local GFOA / MFOA Surveys
• Tammy Wolters County of Lanark
• Documentation available Open Q A session in
  future

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Thank you Questions?