3.3 The annual report

Local government: Results of the 2003-04 audits.

3.301
The 2002 Act contains a comprehensive planning and reporting regime that builds on the 1974 Act but contains some new elements, including a requirement to include in the annual report:

  • the results of any measurement undertaken during the year of progress towards achievement of the community outcomes to which each group of activities of the local authority relates;
  • a description of any identified effects that any activity within each group of activities has had on the social, economic, environmental, or cultural well-being of the community; and
  • an audited statement of any significant acquisitions or replacements of assets during the year, and the reasons for those acquisitions or replacements, and the reasons for any significant variation between planned and actual acquisitions and replacements.7

3.302
The 2002 Act requires the Auditor-General to report on whether a local authority has complied with these requirements.8

3.303
In this article, we review how the 9 local authorities that prepared annual reports under the 2002 Act for the year ended 30 June 20049 approached these requirements. We focus on some of the requirements in clause 15 of Part 3 of Schedule 10 that are new for local authorities, rather than on all of them.

3.304
All local authorities must meet these requirements in their annual reports for the year ending 30 June 2005. This review should assist the other local authorities to meet the requirements.

Sustainable development reporting

3.305
One of the purposes of the 2002 Act is that local authorities play a broad role in promoting the social, economic, environmental, and cultural well-being of their communities, “taking a sustainable development approach”. In performing that role, local authorities must act in accordance with the principles in section 14 of the 2002 Act, one of which states that, in taking a sustainable development approach, a local authority should take into account:

  • the social, economic, and cultural well-being of people and communities;
  • the need to maintain and enhance the quality of the environment; and
  • the reasonably foreseeable needs of future generations.10

3.306
The 2002 Act requires local authorities to plan for and report on the impact of their activities on the social, economic, environmental, and cultural well-being of their local communities. A local authority’s LTCCP must include descriptive information about each group of activities. In particular, the LTCCP must describe, in relation to each group of activities of the local authority:

  • the activities within the group of activities;
  • the rationale for providing those activities (including the community outcomes to which they contribute);
  • intended service levels and estimated expenses of providing the activities; and
  • how performance will be measured.

3.307
A local authority must also identify in the LTCCP any “significant negative effects” of its activities on the social, economic, environmental, and cultural well-being of the local community.11

3.308
Like the LTCCP, the content of the annual report is partly based around reporting on each group of activities. The annual report must:

  • identify the activities (this duplicates the requirement in the LTCCP);
  • identify the community outcomes to which the group of activities primarily contributes;
  • report the results of any measurement undertaken during the year of progress towards the achievement of those outcomes;12 and
  • describe any identified effects that any activity within the group of activities had on the social, economic, environmental, or cultural well-being of the community.13

3.309
In addition to including the information required by Part 3 of Schedule 1014, the annual report must also contain the auditor’s report:

  • on the financial statements; and
  • on the local authority’s compliance with the requirements of Schedule 10 that apply to the annual report.

3.310
The Auditor-General must therefore report on whether a local authority’s annual report is complete, in the sense of containing the information required by Part 3 of Schedule 10, and whether the local authority has complied with the requirements of Schedule 10. For non-financial information, this requires assessing and reporting on whether a local authority has included the information required by Part 3 of Schedule 10 in its annual report in the form and manner required by Part 3.

3.311
It can be seen that the 2002 Act reflects the sustainable development approach, in terms of both its core purposes and principles and the planning and reporting framework. As well as the 3 considerations usually associated with sustainable development – social, economic, and environmental well-being – the 2002 Act has the promotion of “cultural well-being” as one of the purposes of local government and therefore a core consideration for local authorities.

3.312
As well as auditing the LTCCP, the Auditor-General has a role in assessing and reporting on whether local authority annual reports comply with the requirements of Part 3 of Schedule 10, including the requirement to report any measurement of progress towards achieving community outcomes, and the impact of a local authority’s activities on social, economic, environmental, and cultural well-being.

Review of “the early 9” annual reports on sustainable development reporting

3.313
We have reviewed the annual reports of the 9 councils that adopted an LTCCP for June 2003. These councils were Dunedin City, Greater Wellington Region, Hutt City, Manukau City, Masterton District, Waitakere City, Wanganui District, Wellington City and Western Bay of Plenty District.

3.314
The new reporting requirements are listed below with commentary about how these requirements were addressed by the 9 councils.

Identification of community outcomes the group of activities primarily contributes to (clause 15(b), Schedule 10)

3.315
Some councils distinguished between community outcomes and council strategic goals, while others took the community outcomes and indicated what the council would be doing to support them. One council gave each significant activity a heading, but it was not clear whether it was a community outcome or not.

3.316
Most councils aligned their financial statements with groups of activities, showing the linkage of council activity to community outcomes.

3.317
As councils prepared the 2003 LTCCP under transitional provisions, we would expect the subsequent annual report to reflect the developmental nature of the community outcomes. However, councils will need to take care to differentiate between community outcomes and council-specific objectives and measures.

Results of measurement of progress towards the achievement of community outcomes (clause 15(c), Schedule 10)

3.318
The 9 councils took a variety of approaches. In one case, targets and progress were provided, which were more of an action update than a performance (outcome) assessment. One council had developed a set of community indicators for the community outcomes, and provided a range of performance measures for its own work.

3.319
One council had a separate sustainable development report that provided measures of community outcomes, and indicated progress towards those outcomes, supported by a corporate sustainability report that noted goals and measures of the performance of the organisation itself. Another council provided several reports, separated into the 4 aspects of well-being (e.g. a social indicators report or an economic indicators report).

3.320
Care will need to be taken to ensure that reporting on progress in measuring achievement of community outcomes consists of more than action updates. While it is useful and necessary for councils to report on what they have done, measures also need to be designed to capture the impact of the action taken.

Description of any identified effects of any council activities on the social, economic, environmental, and cultural well-being of the community (clause 15(d), Schedule 10)

3.321
This is an area still under development at the time these annual reports were prepared. Few of the 9 councils explicitly included a consideration of effects in their annual report.

3.322
Several councils took the route of providing separate reports for each aspect of well-being, while others noted that frameworks to enable them were in preparation. While separate reports for each aspect of well-being are logical, there is a risk that this kind of approach may result in an environment that creates 4 new “silos”. The 2002 Act does not require the 4 aspects of well-being to be translated into a specific form of reporting. Indeed, other provisions emphasise the importance of integration in order to support decision-making and co-ordination.15 Councils therefore have the discretion to choose the manner of presentation that best allows such integration to occur.

3.323
More than one council noted that a reporting framework was under development. It should be noted that the 2002 Act asks councils to describe the effects of their activities, not to reiterate their aims.

3.324
There is a relationship between a council’s own service performance monitoring and reporting and the monitoring that the 2002 Act requires it to provide to the community on the wider achievement of the community outcomes. A council therefore needs to be clear about the framework within which it assesses how well its activities and services are contributing to the community outcomes they are intended to help achieve.

3.325
Overall, the descriptions that reported on the 15(d) requirement provided clear signals to communities about where the agreed direction lies and what actions the council is taking to support those goals, and provides linkages to what council funding will be required to achieve them. While improvements are expected to be made in terms of clarity of information and improved frameworks for thinking about and identifying the costs of activities, these first reports based on the 2003 LTCCPs provide a clear indication that many councils are coming to grips well with the intent of the new legislation and are providing good information to their respective communities.

Reporting on service levels

3.326
Clause 15 in Part 3 of Schedule 10 contains further content requirements for the annual report. The annual report must include an audited statement comparing actual service levels for the group of activities against the intended levels of service provision (as set out in the LTCCP for that year), and giving the reasons for any significant variance between actual and expected service provision. The 1974 Act contained a similar requirement – a local authority’s financial statements had to include a statement of service performance, and that statement was to be audited.

3.327
As this is not a new requirement for local authorities, we do not focus on it in this article.

Statement of acquisition and replacement of assets

3.328
The 2002 Act contains more detailed requirements than the 1974 Act for the provision of information about local authority assets.

3.329
The annual report must include an audited statement:16

  • describing any significant acquisitions or replacements of assets undertaken in the year and giving reasons for those acquisitions or replacements; and
  • giving the reasons for any significant variation between the acquisitions and replacements projected in the LTCCP and those actually made.

3.330
The information in the annual report therefore links to the LTCCP – the LTCCP must contain detail about the management of local authority assets, including how their maintenance, replacement and renewal will be undertaken and how costs will be met.17

3.331
This requires each local authority’s auditor to audit its statements on the matters referred to in paragraph 3.329.

3.332
All information in plans and reports prepared under the 2002 Act must be prepared in accordance with generally accepted accounting practice (GAAP), where GAAP applies.18

Comment on the 9 local authorities’ statements about asset acquisition and replacement

3.333
Significant asset acquisition and replacement is noted in planning financial forecasts, and is therefore represented in the budget sections of the annual report.

3.334
All councils reported any significant variances to the budgeted capital expenditure, and noted the reasons for a significant variation between budgeted and actual amounts. Financial variances were in the financial section of the reports, such as the Statement of Financial Position.

3.335
However, capital expenditure changes were usually listed as part of the reporting on the groups of activities section of the report. While this has the advantage of information on one topic being kept together, a determined inspection of the whole report would be required to ascertain any major variations between the LTCCP and actual achievement of what was planned.

3.336
Under the scheme of the 2002 Act, asset acquisitions and replacements form part of the group of activities set of information in both the LTCCP and the annual report. We therefore believe that presenting information within each group of activities is consistent with the requirements of the 2002 Act where:

  • a council has considered the presentation needs of readers of the annual report and structured information to address these needs (including the ability of readers to relate the report to the LTCCP and annual plan on which it is reporting); and
  • the information is clearly identifiable within the structure of the annual report.

7: These requirements are in clause 15 of Schedule 10.

8: Section 99(1)(b).

9: Only the 9 local authorities that prepared an LTCCP for the period beginning 1 July 2003 had to prepare an annual report under the 2002 Act for the year ended 30 June 2004.

10: Section 14(1)(h).

11: Clause 2, Schedule 10.

12: The LTCCP must state what measures will be used to assess progress towards the achievement of community outcomes – clause 1(f), Schedule 10.

13: Clause 15, Schedule 10.

14: Part 3 of Schedule 10 sets out the content requirements for the annual report under the following 7 headings:

  • group of activities;

  • council-controlled organisations;

  • financial statements;

  • remuneration issues;

  • severance payments;

  • statement of compliance; and

  • general.

15: See, for example, sections 91(2)(d) and 93(6).

16: Clause 15(e) and (f), Schedule 10.

17: Clause 2(1)(d), Schedule 10.

18: Section 111.

page top