Part 4: Proposed performance audits and studies for 2005-06

Local government: Results of the 2003-04 audits.

Performance audits and studies are significant audits covering issues of effectiveness and efficiency or matters of “best practice”. They enable the Auditor-General to provide greater breadth and depth of assurance in key areas of central and local government activity, or to provide guidance on areas of major audit interest.

To determine our annual work programme, we undertake a comprehensive process of strategic audit planning that includes identifying topics for performance audits and studies. Information on this planning process is set out in our Annual Plan.1

The following performance audits and studies have been proposed for the local government sector in 2005-06.

Economic development funding (West Coast)


In 2001, the West Coast received a one-off payment of $120 million to assist the West Coast economy to adjust to the Government’s policies on the ending of logging of Crown-managed indigenous forests. The community expected substantial benefits from that funding, but at least 2 high-profile investment failures resulted from it. One of them involved the Auditor-General in an extensive inquiry into the financial collapse of a plastics factory initiative.

While the failure of particular initiatives has attracted high-profile publicity, there has been no overview of how economic development funding has been invested and applied on the West Coast.

What is the potential impact of this performance audit?

Our proposed performance audit will examine how the West Coast economic development funding has been invested, and whether the application of the funding was effective. The Local Government and Environment Committee will be offered a briefing on the results of our audit.

Disasters – Maintenance and capacity of flood protection assets


In 2004, two significant civil emergencies – both floods – occurred within 6 months of each other. These emergencies stretched existing flood protection schemes and community and national response capabilities. With affected communities still coping with the flow-on effects, there has been concern about of the ability of regional council flood protection schemes to protect such communities. Public and community awareness of the 2004 floods is high, and there is a clear expectation that local authorities will maintain adequate flood protection schemes. In a 1998 report to Parliament2, we raised concerns about local authorities’ management of flood protection assets.

What is the potential impact of this performance audit?

Our proposed performance audit will review the site management practices of relevant local authorities, including their management of flood-related assets, and their procedures when floods occur. The audit will assess the effectiveness of flood protection assets associated with the two 2004 floods, and would aim to improve local authority management of such assets. The Local Government and Environment Committee would be offered a briefing.

Local authority decision-making


The 2002 Act imposes principle-based decision-making obligations that local authorities are working to understand and embed in their management processes, in order to give best effect to their purpose of promoting long-term, sustainable well-being, and democratic decision-making and actions. Local authorities also face risks if their decisions can be shown to be unreasonable, or if due process has not been observed.

Following passage of the 2002 Act, high-level guidance material was produced by sector organisations and the Department of Internal Affairs. As local authorities have developed more experience in implementing the 2002 Act, however, a need for more specific advice has emerged. We have dealt with a number of complex ratepayer enquiries about local authorities’ decision-making obligations and consider that we now have sufficient experience to distil and reflect the good practice emerging from the sector.

What is the potential impact of this performance audit?

Our proposed performance audit would aim to provide advice to local authorities on their principle-based decision-making obligations. The Local Government and Environment Committee would be offered a briefing.

Procurement guidelines update


Our procurement guidance requires updating to deal with general procurement issues and to clarify its application to local government procurement decisions. We are aware that there are other sources of procurement guidance, and that some issues that we have considered in inquiries (such as sole-source procurement) have not yet been included in our guidance.

What is the potential impact of this study?

Our proposed study would update the Auditor-General’s procurement guidance. Through this study, we would maintain the relevance of our published guidelines to current practice, and ensure that they apply to situations faced by both central and local government. The aim would be to improve the management of procurement activities by public entities. The relevant Select Committee(s) would be offered a briefing.

Rates postponement – Reverse mortgages


A small number of local authorities are providing rates postponements as reverse mortgages. This is an initiative made possible by the new powers under the Local Government (Rating) Act 2002. Legislative, accounting, debt management, and financial prudence issues need to be considered for such initiatives.

What is the potential impact of this study?

Our proposed study would identify the extent to which the rates payment option is being taken up by ratepayers in the early stages of such schemes, and assess local authority compliance with appropriate statutory responsibilities. It would also address arrangements for prudent management of the potential impact of these schemes on local authorities. The study would seek to improve the management of reverse mortgages. The Local Government and Environment Committee would be offered a briefing.

1: Annual Plan 2005-06, parliamentary paper B.28AP(05), pages 40-43.

2: First Report for 1998, parliamentary paper B.29[98a], pages 49-53.

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