Introduction

The National Capital Authority (NCA) was established in 1989¹ following the introduction of self-government in the Australian Capital Authority (ACT). Its vision is ‘A National Capital which symbolises Australia's heritage, values and aspirations, is internationally recognised and worthy of pride by Australians'.

The NCA's functions are set out in the Australian Capital Territory (Planning and Land Management) Act 1988 (the PALM Act). For the purposes of its reporting to Parliament, the NCA has three Outputs against which its performance is measured:

• Output 1: Canberra and the ACT are planned and developed in accordance with their national significance;
• Output 2: Promotion and awareness strategies, projects and services for the National Capital; and
• Output 3: Asset and land management and capital enhancement services.

While the NCA has control over all development in ‘Designated Areas'² and can approve or reject individual proposals for works in those areas, it does not have direct responsibility for the construction and maintenance of all the buildings and assets contained in the Areas. Generally speaking, the assets for which the NCA has sole responsibility can be described as non-building assets (such as parklands) and non-office buildings (such as the National Carillon and Blundell's Cottage).

Audit Objective

The objective of the audit was to assess the effectiveness of the NCA's management of its asset portfolio. This included examining its asset management systems and the management of selected contracts that the NCA has in place to maintain specific assets.

An audit of the ‘administration, efficiency and effectiveness of the operation of the National Capital Authority' had been suggested to the ANAO by the Parliamentary Joint Committee on the National Capital and External Territories. The NCA's management of national assets was selected as the subject in order to contain the focus of the audit and to produce a timely report. In March 2008, the Joint Standing Committee on the National Capital and External Territories announced an inquiry into the role of the National Capital Authority in the planning, development and promotion of the national capital. The Committee has been asked to report by 30 June 2008.

Audit conclusions

The national assets for which the NCA is responsible include some of the National Capital's most significant national and cultural landscapes and attractions, including Lake Burley Griffin, Anzac Parade and a large number of memorials. The value of the national assets as at June 2007 was $456 million³. Although requiring review and update, the NCA has generally appropriate asset management policies and a documented asset management framework.

The need for the NCA to develop new national assets (rather than operating and maintaining existing ones) occurs relatively infrequently. The ANAO's examination of the NCA's recent development of a major memorial, the National Police Memorial, indicated that the NCA delivered the required outcome on time and within budget, indicating that its asset development practices are to an appropriate standard.

The NCA outsources the maintenance of most of the national assets under its control and, in this context, there have been significant deficiencies in the NCA's maintenance of national assets. This is partly due to the absence of a functional asset management system⁴ to inform decision making, and to inadequacies in the management of maintenance contracts. This audit highlights the need for stronger governance arrangements in relation to both asset maintenance and contract management.

An additional element of the NCA's asset management task is its administration of diplomatic leases. There is a long-standing administrative practice of offering foreign countries wishing to establish an embassy or high commission in Canberra a choice between paying once, up-front for a lease, or paying rent each year. This practice has evolved over many years and it has not been endorsed by government. A 1993 review, commissioned by the NCA but not presented to the then government, concluded that this approach leads to a significant differential in financial terms between the two alternative options. In the light of this differential, there would be benefit in the NCA, in conjunction with other relevant agencies, reviewing the current approach with a view to allowing the government to establish its preferred position with respect to any new diplomatic leases which balances achieving a return on diplomatic leases with its broader foreign policy objectives.

Key Findings

Asset management framework and asset management system (Chapter 2)

In order to effectively manage its assets, an agency needs to have both an asset management framework and an asset management system.

An asset management framework should integrate with an organisation's broader corporate plans and strategies and assist in planning expenditure on creating new assets, on the repair and replacement of existing assets and on their operation. The NCA did not commence development of an integrated asset management framework until 1998, some six years after it was established. The framework, which includes an asset policy, an asset management strategy, an asset management plan and a capital management plan, was not up to date at the time of the audit.

An asset management system is the practical expression of the asset management framework. At its simplest level, an asset management system includes a listing of all of an organisation's assets and their location. Modern, computerised asset management systems allow organisations to effectively manage the operation and maintenance of their assets. They also support strategic decision making on issues such as replacement of an asset rather than continuing to maintain an asset beyond the end of its useful life.

As outlined in Chapter 2, the NCA does not have a functional computerised asset management system. The NCA purchased a proprietary asset management system in 1998 at an initial cost of $800 000 but, despite the expenditure of a further $600 000, the system has never achieved its full functionality. Work is required to implement a fully functioning assessment management system. In this context, the NCA has advised the ANAO that it would be appropriate for it to review the range of systems that are available.

Maintenance of national assets (Chapter 3)

Since its establishment in 1989, the NCA has outsourced the maintenance of the national assets under its control. In this context, the ANAO examined the NCA's administration of two of the large maintenance contracts in order to assess whether these arrangements represent value for money as required by the Commonwealth Procurement Guidelines.

In the case of the Open Space Maintenance contract for Commonwealth and Kings Park, the NCA had not effectively managed the performance of the contractor. In addition, on a number of occasions it overpaid the contractor and also did not collect the rent for a depot in Commonwealth Park owned by the NCA, and used by the contractor. The financial consequences of these deficiencies totalled more than $300 000. The NCA has instituted recovery action.

In the case of the facility management contract for Scrivener Dam, the NCA had allocated sufficient funds for minor and routine maintenance, but has not funded a number of major, non-routine maintenance tasks that the NCA's expert consultants had recommended be carried out. Specifically:

• in 1998, a consultant engaged by the NCA recommended 28 projects that it considered necessary for the dam's electrical system. The NCA originally scheduled these works to be completed in a two year program commencing in 2003. It has subsequently twice rescheduled the works such that, on the present schedule, the works will not be completed until November 2009;
• when the facility management contractor was engaged in 2000, it recommended a number of non-routine works that it believed needed to be undertaken. It resubmitted its recommendations in 2001 and 2002 and wrote to the CEO of the NCA in October 2002 to express concern at the delay in approving the works that it considered ‘critical'. The first of these works was approved by the NCA in November 2002; and
• in 2000, another firm of consultants recommended a number of other projects, including 26 that it considered ‘necessary to be done in the short term (1–2 years)' which were ‘important for Dam operation and safety, surveillance, OH&S, environment'. As at February 2008, seven of the 26 projects (27 per cent) had been completed.

This situation emphasises the importance of the NCA establishing funding priorities to bring the dam to an acceptable standard having regard to recommendations by the firms contracted to advise on the condition of the dam and its maintenance. It also highlights the need for improved governance arrangements to ensure that any identified shortcomings in the condition of national assets are brought to attention and addressed in a timely manner.

In April 2008, the NCA advised the ANAO that it is currently facing challenges in relation to the financial sustainability of its operations in the context of its asset management responsibilities. It further advised that there has been a decrease in real funding of more than 20 per cent over the past five years despite increases in the number and diversity of assets maintained by NCA.

Diplomatic leases (Chapter 4)

The NCA administers leases issued to foreign diplomatic missions represented in Canberra. With a 1 January 2006 value of $109 million, diplomatic land is the most valuable asset for which the NCA is responsible.

There is no established Government approach to guide the NCA in its administration of these leases. Rather, administrative arrangements have evolved over time, with their roots in decisions made in the 1930s. As a consequence, some foreign diplomatic missions have been allowed to ‘purchase' a 99 year lease for the payment of an amount equivalent to one year's Unimproved Capital Value of the block in question, while others have opted to pay annual rent. As an indication of the differential in the two options, if all foreign missions had been required to pay rent on an annual basis, the Australian Government would have collected approximately $385 million more in revenue than it will have over the 99 year terms of the leases.

The NCA commissioned a review of diplomatic leasing in 1993 which highlighted this situation and which recommended that allowing foreign countries to ‘purchase' their leases be discontinued. However, the review, which could have resulted in the development of a considered, ‘whole of government' approach to guide the NCA, was not finalised. The ANAO has recommended that the NCA should liaise with the Department of Finance and Deregulation (Finance) and the Department of Foreign Affairs and Trade (DFAT) with a view to providing advice to government on the best approach which balances both revenue and foreign policy considerations.

Improvement opportunities

The ANAO has made five recommendations. Four of those recommendations are aimed at addressing deficiencies in specific administrative areas, such as the need for the NCA to ensure that its asset management framework is brought up to date. The remaining recommendation – Recommendation No. 4 – is directed at the NCA accelerating the timeframe in which action will be taken to address the Scrivener Dam management and maintenance issues raised by its expert consultants.

Agency responses

The NCA agreed with three of the audit recommendations and agreed with qualification with the remainder. One recommendation – Recommendation No. 5 relating to diplomatic leasing arrangements – affected agencies in addition to the NCA. Finance agreed to the recommendation and DFAT agreed with qualification.

The full responses of the NCA and DFAT to the audit are provided at Appendix 1. Finance did not provide any further comments beyond agreeing to Recommendation No. 5. The NCA and DFAT also provided a summary of their comments as follows.

NCA

The NCA agrees with all five recommendations in the report as they provide a constructive basis for improving the NCA's overall asset management framework, particularly in relation to its asset management system, internal controls and contract management procedures.

The NCA has started to implement those recommendations in the report that can be met within existing resources. The NCA will be replacing its existing asset management system. The NCA has signed an agreement with a new provider with the new system to be implemented by December 2008. The new system will have a direct interface with other key business systems, will automate some administrative workflows and improve both operational management and internal control in respect of contract management.

With respect to the comments in the report related to the maintenance of national assets (Scrivener Dam), the NCA has been advised in the most recent (April 2008) independent Dam inspection report that the Dam ‘has been maintained and operated satisfactorily' and ‘The NCA's Forward works program has been reviewed and considered appropriate and satisfactory for ensuring on-going improvements and safety necessary for the dam'.⁵

The full and timely implementation of the recommendations will be subject to the availability of financial and management resources, prioritisation of maintenance needs throughout the estate and the overall level of risk. Public safety and asset protection will continue to be the primary considerations in NCA decisions related to the management of administered assets.

DFAT

DFAT notes the conclusions of the Report that practices relating to the leasing of land for diplomatic purposes have evolved over time and have not been formally endorsed by government. DFAT shares the view that there would be benefit in developing options for government consideration in order for it to establish a preferred position for future management of the diplomatic estate.

Footnotes

^{1 The agency was known as the National Capital Planning Authority between 1989 and 1999. For the purpose of this report, it is referred to by its current name.}

^{2 The ‘Designated Areas' are defined in the PALM Act to be the Central National Area (which includes the Parliamentary Zone and Lake Burley Griffin), the Inner Hills and Main Avenues and Approach Roads.}

^{3 National Capital Authority, Annual Report 2006–07, November 2007, p. 17}

^{4 Whilst a proprietary system was purchased in 1998, little of its functionality has been used.}

^{5 Further detail on the most recent Dam inspection report are included at paragraphs 3.75 and 3.76 of the audit report.}