Results of audit: Local government entities 2013–14 Report 16: 2014–15 Queensland Audit Office Location Level 14, 53 Albert Street, Brisbane Qld 4000 PO Box 15396, City East Qld 4002 Telephone (07) 3149 6000 Email [email protected] Online www.qao.qld.gov.au © The State of Queensland. Queensland Audit Office (2015) Copyright protects this publication except for purposes permitted by the Copyright Act 1968. Reproduction by whatever means is prohibited without the prior written permission of the Auditor-General of Queensland. Reference to this document is permitted only with appropriate acknowledgement. Front cover image is an edited photograph of Queensland Parliament, taken by QAO. ISSN 1834-1128 Contents Summary ..................................................................................................................................... 1 Audit opinions issued ........................................................................................................ 1 Timeliness of preparation of financial statements.............................................................. 2 Quality of financial statements submitted for audit ............................................................ 3 Financial sustainability ...................................................................................................... 4 Internal control frameworks ............................................................................................... 6 Recommendations ............................................................................................................ 7 Reference to comments .................................................................................................... 7 1 Context ............................................................................................................................. 9 1.1 Local government responsibilities .......................................................................... 9 1.2 Audit responsibilities ............................................................................................ 13 1.3 Financial reporting time frames ............................................................................ 14 1.4 Local government entities exempted from audit ................................................... 14 1.5 Report structure and cost ..................................................................................... 15 2 Results of financial audits ............................................................................................ 17 2.1 Background .......................................................................................................... 18 2.2 Conclusions ......................................................................................................... 18 2.3 Financial audit opinions ........................................................................................ 18 2.4 Status of outstanding prior-year opinions ............................................................. 21 2.5 Financial sustainability statements ....................................................................... 22 3 Significant financial reporting issues .......................................................................... 25 3.1 Background .......................................................................................................... 26 3.2 Conclusions ......................................................................................................... 26 3.3 Asset management .............................................................................................. 26 3.4 De-amalgamations ............................................................................................... 29 3.5 Contract management and procurement practices .............................................. 35 3.6 Accounting for Legacy Way ................................................................................. 37 3.7 Recommendations ............................................................................................... 38 4 Timeliness and quality of financial statements .......................................................... 39 4.1 Background .......................................................................................................... 40 4.2 Conclusions ......................................................................................................... 40 4.3 Quality of draft financial statements ..................................................................... 40 4.4 Timeliness of financial statements ....................................................................... 42 4.5 Recommendations ............................................................................................... 46 5 Internal control frameworks ......................................................................................... 47 5.1 Background .......................................................................................................... 48 5.2 Conclusions ......................................................................................................... 48 5.3 Internal control frameworks .................................................................................. 49 5.4 Control activities ................................................................................................... 51 5.5 Information and communication systems ............................................................. 52 5.6 Monitoring and review of control activities ............................................................ 53 6 Financial sustainability ................................................................................................. 57 6.1 Background .......................................................................................................... 58 6.2 Conclusions ......................................................................................................... 58 6.3 Results for each measure .................................................................................... 59 6.4 Recommendations ............................................................................................... 67 Appendix A— Comments ........................................................................................................ 71 Appendix B— Status of financial statements ........................................................................ 91 Appendix C— Status of current-year financial sustainability statements ........................ 103 Appendix D— Status of financial statements of exempt entities ....................................... 107 Appendix E— Local government entities for which audit opinions will not be issued .... 109 Appendix F— Status of 2012–13 financial statements........................................................ 111 Appendix G— Financial sustainability measures ............................................................... 113 Appendix H— Overall assessment of council financial governance ................................. 123 Appendix I— Queensland council areas by category ......................................................... 131 Results of audit: Local government entities 2013–14 Summary Summary This report summarises the results of our financial audits of the 77 local governments (councils) and the 77 related entities they control, for the 2013–14 financial year which ended on 30 June 2014. The financial statements, including our audit opinion, are contained within each council’s and their related entity’s annual reports. Our audit opinion provides assurance that these statements are reliable. Local governments (councils) vary widely in their size and location; and in the broad range of community services they provide. To enable better like for like comparisons in this report we group them in the same way the Local Government Association of Queensland did in its 2013 report Factors impacting Local Government Financial Sustainability: A Council Segment Approach–into Coastal, Indigenous, Resources, Rural/Regional, Rural/Remote and south-east Queensland segments. Audit opinions issued We have issued 145 opinions, which include 69 of the 77 council financial statements. In some cases, when part or all of the financial statements do not comply with relevant legislative requirements and/or Australian accounting standards, we ‘qualify’ our audit opinion. We have only needed to qualify six of our audit opinions so far, which is 4 per cent. Five of these were for the statements of related entities. We qualified four audit opinions for related entities for the 2012–13 financial year. Last year we qualified five councils. We have qualified one council so far this year. This may appear to be an improvement, but eight council audits are still in progress, compared to two at the same time last year. Unfinished audits regularly indicate issues that translate into qualified opinions. We also included 'emphases of matter' in 25 of the 74 opinions we issued on related entities. Emphases of matter do not change the audit opinion—they just highlight something that will help users better understand the financial report. Most often, we have drawn the attention of the reader to the fact that the statements have been prepared for a special purpose, rather than as general purpose financial statements. Report 16: 2014–15 | Queensland Audit Office 1 Results of audit: Local government entities 2013–14 Summary Figure A Analysis of audit opinions issued Note: Audit