1.3 Reporting on effects of activities in the annual report
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The Local Government Act 2002 (the 2002 Act) contains a comprehensive reporting regime for all local authorities. The audited annual report of each local authority is a prime means of that reporting. Local authorities are required to plan for, and report on, the effect of their activities on the social, economic, environmental, and cultural well-being (the 4 well-beings) of their local communities.3
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The 2002 Act requires the Auditor-General to report on whether a local authority has complied with these requirements.4
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In this article, we review how all local authorities approached these requirements.
We focus on the reporting requirements that are new, and on clause 15(d) and (f) of Schedule 10 in particular.
Background
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In the decision-making process, councils are required to identify and consider how options affect the 4 well-beings, community outcomes, and future generations. Recording this process appropriately, and linking it to the performance management framework, substantially enhances a council’s ability to identify and report on the effects of the activities it undertakes. An integrated planning, decision-making, and reporting framework is critical to meeting the requirements of the 2002 Act.
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We recognise that, in order to be able to meet this requirement, councils will need to develop a comprehensive framework that links community outcomes monitoring, council decision-making, and council performance against service levels to reporting that includes the identified effects of activities on the 4 well-beings. It is clear from our previous report5 and the annual reports of local authorities that this is a challenge. It is an area in which we would expect to see ongoing development.
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We would expect monitoring frameworks for community outcomes to be part of the Long-Term Council Community Plan (LTCCP).6 We would expect the report on progress, which needs to be not less than once every 3 years, to be published at a time when the information it contains will be useful to the community for the development of the next LTCCP.
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Figure 1.4 demonstrates the related requirements between the LTCCP and annual report planning and reporting.
Figure 1.4
Related requirements in the LTCCP and annual report for each group of activities
| LTCCP (Schedule 10, clauses 1 and 2) | Annual report (Schedule 10, clause 15) |
|---|---|
| Identify activities within the group of activities. | Identify activities within the group of activities. |
| Identify the rationale for delivery of the group of activities (including the community outcomes to which the group of activities primarily contributes). | Identify the community outcomes to which the group of activities primarily contributes. |
| State what measures will be used to assess progress towards the achievement of community outcomes. State how the local authority will monitor and report on the community’s progress towards achieving community outcomes (not less than once every 3 years). |
In relation to each group of activities, report the results of any measurement undertaken during the year of progress towards the achievement of outcomes. |
| Outline any significant negative effects any activity (within the group of activities) may have on any of the 4 well-beings. | Describe any identified effects that any activity within the group of activities has had on the 4 well-beings. |
| Identify additional or replacement assets needed to meet levels of service and/or demand (summary of clause 2(d)). | Describe any significant acquisitions or replacements of assets, the reasons why,and the reasons for any variance from the LTCCP. |
Focus for review of 2004-05 annual reports
Identification of effects on the 4 well-beings, and significant acquisitions disclosure
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Last year, we reviewed how the 9 local authorities that prepared annual reports under the 2002 Act for the year ended 30 June 2004 approached the annual report requirements of clause 15 of Schedule 10. As shown in Figure 1.4, this clause requires an annual report to:
- identify the activities within the group of activities;7
- identify the community outcomes to which the group of activities primarily contributes;8
- report the results of any measurement undertaken during the year of progress towards achieving the community outcomes to which each group of activities relates;9 and
- describe any identified effects that any activity within each group of activities has had on the 4 well-beings.10
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Reporting on effects of activities in the annual report 1.309 In addition, the annual report must contain:
- an audited statement comparing the actual and intended levels of service provision, and the reasons for any variance between the actual and the expected levels; and
- an audited statement describing any significant acquisitions or replacements of assets undertaken during the year, giving the reasons for those acquisitions or replacements, and also giving the reasons for any significant variation between planned and actual acquisitions and replacements.11
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In 2004, we assessed reporting under clause 15(d) and (f) of Schedule 10 as being the least well done of the annual report requirements.
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As with most new planning and accountability provisions, we expected councils to show progress towards meeting these accountability provisions. We found a variety of approaches to meeting these requirements. Several councils indicated that they were undertaking further work, particularly in identifying effects on the 4 well-beings.
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We made further comment in our 2004 report, noting the newness of the requirement, our recognition of its developing nature, and our hope that, in assessing the “early 9” (the local authorities that prepared annual reports under the 2002 Act for the year ended 30 June 2004), other councils would be assisted in their reporting in subsequent years.12
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For the annual reports for 2004-05, we considered the responses of all councils to the requirements of clause 15(d) and (f) of Schedule 10; in particular, the 77 councils for which this was a first time.
Description of identified effects on the 4 well-beings
What is required
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While the 2002 Act requires reporting against the 4 well-beings, it does not specify how this is to be done.
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A council therefore needs to develop the framework within which it makes decisions and determines how well its own activities and services contribute to community outcomes. It also needs to be able to report on the effects of these activities.
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It can be challenging for a council to both identify and report on the range of effects of an activity. Some traditional activities, such as water management and building roads, are generally seen as having positive effects, and it can be a challenge to analyse and describe the range of effects these activities may generate for each well-being.
What local authorities did
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Most local authorities provided information on what their activities were, why they undertook those activities (that is, they identified the activities’ contribution to one or more community outcomes), how the activities were measured, and progress towards the objective.
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Many councils provided a discussion on the effects of their activities. However, many of the effects identified appear to be more a repetition of council’s aim or objective for that activity rather than an identified effect. It is necessary that councils distinguish between an identified effect of undertaking an activity, as required by the 2002 Act, and the effect they desire that activity to have.
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Consistent with reporting against their LTCCP, which requires local authorities to outline any significant negative effects of their activities, a small number of authorities have identified only negative effects in their subsequent annual report. Although in some of the reports these negative effects were thoroughly discussed, we consider that none of the reports that identified only negative effects met the requirements of the 2002 Act, which requires an annual report to report any identified effects.
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A few local authorities identified both negative and positive effects. These were presented as either written commentaries or a table.
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Some local authorities provided general statements about the effects of their activity. In our opinion, a statement to the effect that “this activity contributes to economic and social well-being through protecting the safety of residents” is not describing an identified effect.
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A small number of councils worked through their activities and provided information on the effect each activity had on each well-being. For example, some water management systems do not support certain environmental outcomes, or some roading activity can have detrimental effects on the social cohesion of a community.
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Other councils provided a report on each well-being, outlining the council’s contribution and the effect of council activity on these areas.
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A few councils noted that they were developing the links between the outcomes, rationale, activity, performance measure, targets, and identification of effects for the 2006-16 LTCCP.
Comment on identification of effects
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We noted in our report last year13that councils need to ensure that their reporting on progress towards community outcomes is more than an action update. The same comment can apply to the identification of effects.
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Enhancements that could be made in order to meet those requirements include:
- moving from a restatement of council aims to identifying effects;
- moving towards specific consideration and analysis of the effects of activities rather than generalised statements; and
- ensuring that the performance management framework is an integrated package that links community outcomes and the rationale for council activity to performance measures, service levels, and targets. With such a linked framework, it is easier for councils to report on progress towards outcomes (as required by clause 1(g) of Schedule 10) and the identified effects of activities (as required by clause 15(d) of Schedule 10).
Conclusion
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Overall, most councils provided clearly accessible information about what the council did, how the community outcome was enhanced, why it undertook the activity, and how it measured performance. While this meets accountability requirements for the clear reporting of their activities back to their community, further work is required in clearly reporting the identified effects of those activities.
Statement of acquisition and replacement of assets
What is required
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The LTCCP – as a plan – creates the framework against which the annual report discloses actual results. This includes how assets will be maintained, replaced, and renewed, and how costs will be met.14
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Significant asset acquisitions and replacements are noted in planning financial forecasts, and are represented in the budget sections of the LTCCP.
1.330 The annual report must include the information listed in paragraph 1.308.
What local authorities did
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Some councils reported significant variations between the LTCCP and the actual asset programme. Few provided information on the reasons for these variations.
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Those that did provide information about, and reasons for, the variations did so either as notes to the Financial Statements or, more generally, in the Statement of Service Performance as part of reporting on the group of activities.
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In some cases, major variations were noted in the mayor’s or chief executive’s report.
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At least one council provided a clear list of all assets acquired and disposed of (with reasons why) in one section that provided a clear snapshot of all council activity in this area.
Comment on statements about significant asset acquisition and replacement
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We consider that providing high-level information on significant asset decisions (for instance, signalling either delay or bringing forward major asset acquisition) in the mayor’s report is useful for the public. However, the mayor’s report is not subject to audit, and cannot include all the information required by the 2002 Act.
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Where variations were reported in the Financial Statements section, they were often aggregated. In our view, this does not provide accessible information to the community about specific actions undertaken by the council for significant assets.
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As we noted last year, putting financial and asset information in the Statement of Service Performance has the advantage of keeping information on one topic together in each group of activities. However, unless the variation and its reason are also clearly signalled in that section, it is not easy to determine the difference between the LTCCP or annual plan projections and the actual expenditure or acquisitions undertaken during the year.
Conclusion
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We are aware that, for most local authorities, the 2004-05 annual report was their first report that was required to meet all the new reporting requirements of the 2002 Act. For many, it required new reporting on their performance. We will be working with our auditors to help the sector become more aware of the requirements in the future, and to facilitate enhanced reporting of performance.
3: These requirements are in clauses 2 and 15 of Schedule 10.
4: Section 99(1)(b).
5: Local Government: Results of the 2003-04 Audits, parliamentary paper B.29[05b], pages 61-87.
6: Schedule 10, clause 1(g).
7: Schedule 10, clause 15(a).
8: Schedule 10, clause 15(b).
9: Schedule 10, clause 15(c).
10: Schedule 10, clause 15(d).
11: Schedule 10, clause 15(e) and (f).
12: Local Government: Results of the 2003-04 Audits, parliamentary paper B.29[05b], pages 77-83.
13: Local Government: Results of the 2003-04 Audits, parliamentary paper B.29[05b], page 80.
14: Schedule 10, clause 2(1)(d).