3.2 Preparing to Audit Long-Term Council Community Plans

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The Local Government Act 2002 (the 2002 Act) introduced a new requirement that local authorities prepare a long-term council community plan (LTCCP).⁴¹ That plan must cover a period of not less than 10 years, and the first plan was required to be adopted in either 2003 or 2004.

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Section 84(4) of the 2002 Act – in relation to a Statement of Proposal containing an LTCCP, and section 94 in relation to a final LTCCP – requires that the relevant document contain a report from the local authority’s auditor on:

• the extent to which the local authority has complied with the requirements of the 2002 Act in respect of the LTCCP;
• the quality of the information and assumptions underlying the forecast information provided in the LTCCP; and
• the extent to which the forecast information and performance measures provide an appropriate framework for meaningful assessment of the actual levels of service.

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The auditor’s report must not comment on the merits of any policy content of the LTCCP.

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The first audit of LTCCPs is required to be undertaken for those adopted in 2006.

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Towards the end of 2003, we initiated a project (called Auditing the Future) to put in place the resources and know-how needed to successfully and credibly audit LTCCPs from 2006 onwards. The project also has an objective to share, promote, and communicate best practice in long-term planning within the local government sector up to 2006.

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While the project is staffed from within our Office, we have established two reference groups to provide guidance and insight as we develop our capability to audit LTCCPs – an External Reference Group, and an Audit Service Provider Reference Group.

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The External Reference Group comprises people selected from local government with expertise in planning, finance, and management, and who have an understanding of the policy drivers for our role under the legislation.

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The Audit Service Provider Reference Group comprises a representative of each of the organisations carrying out audits of local authorities on behalf of the Auditor-General.

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The project’s early phase has focussed on the following matters:

• knowledge building;
• technical standards and good practice development;
• pilot studies; and
• awareness raising and communication.

Knowledge Building

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Exploratory meetings were held with a number of local government representatives about their views and experience of LTCCPs. Particular benefit was gained from workshop sessions with some Councils who had prepared an LTCCP in 2003.

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We also sought information from other international audit organisations which have experience in auditing future-oriented information. There is relatively little experience worldwide, but we have gained some benefit from our exchanges.

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We have also undertaken analysis of sustainable development assurance techniques and are assessing their relevance to our role in auditing LTCCPs.

Technical Standards and Good Practice Development

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We have started work on the technical standards which Councils will need to follow in preparing their LTCCPs. In particular, we have reviewed the application of Financial Reporting Standard No. 29: Prospective Financial Information (FRS-29) to LTCCPs.

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We are satisfied that, in principle, FRS-29 provides a sound basis for the preparation of the financial aspects of the LTCCP. However, we have identified a range of matters that we think require re-consideration, and have brought these matters to the attention of the Financial Reporting Standards Board of the Institute of Chartered Accountants of New Zealand. The Board has advised that it will begin a review of FRS-29, and we have offered to assist with that review in whatever way we can.

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We have identified that the quality of assumptions underpinning an LTCCP is a central issue, and have started some work to identify:

• the assumptions we would expect Councils to make;
• the basis on which those assumptions should be made; and
• the assumptions we would expect to see reported in an LTCCP.

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When completed, this work will be discussed with the Society of Local Government Managers’ (SOLGM) Financial Management Working Party, and we hope that a consensus will emerge on the appropriate assumptions and disclosure thereof.

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We have identified a number of auditing policy and practice matters which we will need to address. These include the form of wording of our audit opinions on LTCCPs, and the approach to materiality in our audits of LTCCPs. We will report further progress on these matters in due course.

Pilot Studies

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To gain a first-hand and real-life appreciation of the LTCCP process, we invited three Councils to allow us to undertake an audit of their 2004 LTCCP as pilot studies. These audits will not be “real time”; nor will we express any opinion on the LTCCP. However, we will pass on any issues that we identify to the Councils concerned, to ensure that they benefit from the process.

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We have started the first two pilot studies (Auckland City Council and Marlborough District Council) and will begin the pilot study of Central Otago District Council in the near future.

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We have already learned a great deal about the challenges faced by Councils in preparing LTCCPs – and the associated challenges for us in auditing these documents. Where necessary, we will also approach other Councils to assist us to test particular aspects of our proposed methodology.

Awareness Raising and Communication

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The audit of LTCCPs is a significant new initiative in the Local Government sector. As a result, we are adopting an active communications strategy and will keep groups such as Local Government New Zealand, SOLGM, Ingenium, and others well informed.

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We have also initiated a series of newsletters updating the sector on issues that we have identified, and the progress of our work. These newsletters and other relevant materials are available on our web site at www.oag.govt.nz.

Future Work

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We will also address the matter of resource planning and management. This will assist us in the planning of LTCCP audits, particularly as they are undertaken only every three years. It will also assist us in ensuring that the appropriate resources are available to do the audits.

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While the challenges of auditing comprehensive future-oriented documents, such as LTCCPs, are not insignificant, we remain confident that we will be ready to audit them in 2006, and that our audits will add significant value to both the communities which have an interest in those documents and the Councils that prepare them.

Footnote 41: Section 93.