| | APRIL 20228IN MY OPINION IN MY OPINIONCONSIDER AN AUDIT PERSPECTIVE TO ENHANCE AND VALIDATE AN ASSET MANAGEMENT PROGRAM Stephen Harrison, Director of Asset Management/Interim Director of Internal Audit, California Water ServiceByFor the past 11-months and through 2022, I have had the opportunity to lead our Company's Internal Audit Department through a professional development and growth opportunity. Prior to this role, I was leading our Engineering Asset Management Team comprised of Engineers, SCADA Professionals, GIS/EAM Specialists, and Field Technicians. From a day-to-day asset management professional to an internal auditor, I agree, I would be scratching my head too! However, after jumping headfirst into the world of auditing there are some unique similarities between auditing and utility asset management. As I was pondering the relationship, I realized how internal auditing principle can complement an Asset Management Program. I hope my perspectives and experiences on the intersection of both worlds' aid in assessing if an audit perspective to enhance and validate an Asset Management Program would fit in your organization. To start off, both practices have one significant component in common; Risk Management. Internal Audit is chartered with providing an independent assessment of financial misstatement risk and effectiveness of internal controls to prevent errors through an annual risk assessment and performance testing of financial controls (reviews, approvals, and segregation of duties). Thanks to Enron and WorldCom, we call this Sarbanes-Oxley; commonly referred to as SOX Compliance. In terms of asset management, similar risk assessments are performed against physical assets to ensure they are meeting operating requirements and controls such as preventative maintenance, renewal, and replacement are implemented. The outcomes for both practices are annual plans to perform needed actions to reduce the risks, eliminate failures, and provide assurance of proper function. Let's take this one step further into a practitioner viewpoint. In audit, the risk of a financial statement correctness is a function of the quantity/value of an account, how complicated the accounting transaction is (level of judgment), and the adherence to internal controls to prevent error. In asset management, this translates to the criticality of the asset, proper asset
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