Auditor-General's Report on the Results of the 2014/15 Audits of Local Authorities Purpose of Report Background Considerations
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Corp-16-1883 Chairperson and Subcommittee Members AUDIT AND RISK SUBCOMMITTEE 5 MAY 2016 Meeting Status: Public Purpose of Report: For Information AUDITOR-GENERAL'S REPORT ON THE RESULTS OF THE 2014/15 AUDITS OF LOCAL AUTHORITIES PURPOSE OF REPORT 1 To update the Audit and Risk Subcommittee on the key findings of the Office of the Auditor-General (OAG) on the audits of all 2014/15 local authority annual reports. DELEGATION 2 The Audit and Risk Subcommittee has delegated authority to consider this report under the following delegation in the Governance Structure, Section C.3. Internal Reporting 7.4 To review the processes for ensuring the completeness and quality of financial and operational information, including performance measures, being provided to Council. BACKGROUND 3 Each year, the OAG issues a public report on its audits of local authority annual reports. The report addresses the performance of local authorities as a whole, and any key findings with regard to statutory compliance and best practice. 4 The report by the OAG is a useful resource which helps to ensure that local authorities are accountable for their performance, while at the same time drawing attention to potential emerging issues. CONSIDERATIONS 5 The report summarises the key findings of the OAG’s report on the 2014/15 annual reports of local authorities as well as some other governance and accountability issues, and notes this Council’s performance in relation to the key findings. This report is analysed under the following four headings: Financial results; Timeliness in annual reporting; Recent OAG reports and other issues affecting the local government sector Audit reports issued in 2015. 6 The full report from the OAG is attached as Appendix 1 to this report. Page 1 of 4 Corp-16-1883 Financial results 7 The table below summarises the key points raised by the OAG in its analysis of financial results. OAG’s specific concern in Kāpiti Coast District Council’s performance in relation to all local authorities relation to OAG concern > 10% increase in the total 0.2% ($0.14 million) increase in revenue revenue of all local authorities between 2013/14 and 2014/15. combined (excluding Auckland), between 2013/14 and 2014/15. 57% of local authorities’ 75% of total revenue represented by rates in (including Auckland) total 2014/15. revenue represented by rates in 2014/15. 66% of capex budget spent by 82% of capex budget spent. the combined local authorities in 2014/15. 11 local authorities with financing Financing costs 15.2% of rates revenue for this costs greater than 15% of rates Council. revenue. The OAG has concerns that managing financing costs that are greater than 15% of rates revenue will reduce a local authority’s ability to respond to unexpected events by borrowing further. Page 2 of 4 Corp-16-1883 Timeliness in annual reporting 8 The table below summarises statutory compliance with regard to the adoption and publication of annual reports. OAG’s specific concern in relation Kāpiti Coast District Responses by Kāpiti to all local authorities Council’s performance in Coast District Council relation to OAG concern / matters for action going forward 76 out of 78 local authorities Council adopted its adopted their annual reports annual report on within four months of year-end. 15 October, which is consistent with previous The OAG concern is that reports years. should be published earlier because “for communities to Compliant but assess performance effectively, Council working to the information must be timely.” bring forward adoption date of 75 out of 78 local authorities Council released its future annual reports, released their annual report within annual report to the starting in 2015/16. one month of adopting it. public on 2 November1. 73 out of 78 local authorities Council released its released their summary annual summary annual report report within one month of on 2 November. adopting it. Recent OAG work in the local government sector 9 The OAG continues to undertake work on various governance and accountability structures in the local government sector, as well as specific investigations in response to an inquiry, which the OAG undertakes at its sole discretion. 10 The report most relevant to this Council, as well as being timely was the report on local body elections. This Council has established processes in place for dealing with pre-election communications and reports. Audit reports issued in 2015 11 The Auditor-General issued 720 audit reports on local government entities and licensing trusts in 2015. Of the 720 reports, 637 were standard audit reports and 62 were non-standard audit reports. 12 Kāpiti Coast District Council received a standard “clean” audit report. Financial Considerations 13 There are no financial considerations. Legal Considerations 14 There are no legal considerations at this time. 1 The full audited annual report was available on Council’s website on 16 October. Page 3 of 4 Corp-16-1883 Policy Implications 15 There are no policy implications to be considered. Tāngata Whenua Considerations 16 There are no tāngata whenua considerations. Publicity Considerations 17 There are no publicity considerations at this stage. SIGNIFICANCE AND ENGAGEMENT 18 This matter has a low level of significance under the Council Policy. RECOMMENDATIONS 19 That the Audit and Risk Subcommittee note the matters raised by the Office of the Auditor-General in its report on the ‘Results of the 2014/15 Audits’. Report prepared by: Approved for submission by: Mark de Haast Wayne Maxwell Financial Controller Group Manager Corporate Services Approved for submission by: Stephen McArthur Group Manager Strategy and Planning APPENDICES Appendix 1: Local Government: Results of the 2014/15 audits Page 4 of 4 B.29[16f] Local government: Results of the 2014/15 audits Results government: Local Local government: Results of the 2014/15 audits Office of the Auditor-General PO Box 3928, Wellington 6140 Telephone: (04) 917 1500 Facsimile: (04) 917 1549 Email: [email protected] 2016 Website: www.oag.govt.nz B.29[16f] Local government: Results of the 2014/15 audits Presented to the House of Representatives under section 20 of the Public Audit Act 2001. April 2016 ISBN 978-0-478-44235-9 Octobe2015Contents Auditor-General’s overview 4 Part 1 – Financial results 7 Revenue 8 Rates revenue 8 Uniform annual general charges 9 Operating expenditure 10 Capital expenditure 11 Capital expenditure compared with depreciation 14 Debt 15 Internal borrowing 17 Part 2 – Timeliness in annual reporting 18 Adopting annual reports 18 Public release of annual reports and summary annual reports 19 The importance of timely reporting 20 Part 3 – Our recent work in the local government sector 21 Governance and accountability of council-controlled organisations 21 Reviewing aspects of the Auckland Manukau Eastern Transport Initiative 22 Effectiveness of governance arrangements in the arts, culture, and heritage sector 23 Principles for effectively co-governing natural resources 23 Matters arising from the 2015-25 long-term plans 24 Inquiries 26 Part 4 – Other issues affecting the sector 30 Hutt City Council – council-controlled organisations 30 South Waikato District Council – investment fund separation 31 Auckland Council – employee costs 33 Part 5 – Local body elections 34 Communication during the pre-election period 34 Pre-election reports 36 Governance training for newly elected members 37 Audit committees after the elections 38 Part 6 – Airports 40 Our role in auditing airports 40 Overview of financial performance 41 Airport revenue 43 Airport infrastructure challenges 44 Airports’ importance to regions 45 Commercial undertaking or social infrastructure? 47 Concluding comments about airports 48 Part 7 – The audit reports we issued in 2015 50 Modified audit opinions 51 Unmodified audit opinions with “emphasis of matter” paragraphs 54 Unmodified opinions with “other matter” paragraphs 57 2 Contents Appendices 1 – Adopting and releasing annual reports and summary annual reports 58 2 – Summaries of the non-standard audit reports issued in 2015 60 Figures 1 – Comparisons of forecast and actual capital expenditure for all local authorities 11 2 – Whole-of-council funding impact statement – variances between budgeted and actual capital expenditure 13 3 – Core activity funding impact statements – total actual capital expenditure and variances to budgeted capital expenditure 13 4 – Local authorities’ performance in not meeting the statutory deadline for adopting annual reports, 2010/11 to 2014/15 18 5 – Number of local authorities that met statutory deadlines for release of annual reports and summary annual reports, 2010/11 to 2014/15 19 6 – Summary of airports’ 2014/15 financial results and financial position 41 7 – Share of total revenue, by airport 42 8 – Audit reports issued on local government entities and licensing trusts 50 3 Auditor-General’s overview Communities continue to expect that their local authority will manage spending well and keep rate increases to a minimum. But the demand for services, and therefore the need for ongoing investment in infrastructure, is generally not reducing. With a changing demographic profile − particularly an ageing population − and a corresponding change in the nature of some services likely to be required in the future, local authorities must think about the long term and consider how to adapt. Financial analysis of local authorities’ revenue and spending Overall, capital expenditure in 2014/15 reduced from 2013/14 and continues to be substantially less than the amounts budgeted for. Although some local authorities are consistently spending money on assets in line with what they budgeted for, other local authorities have not managed so well. If the under- investment continues, it calls into question the long-term ability of local authorities to deliver services to their communities. Because of its size, Auckland Council’s figures continue to distort the sector’s results. To get a clearer picture, we removed Auckland Council’s results from some of our analysis.