3.4 Requests for inquiries

Local government: Results of the 2004-05 audits.

3.401
We receive a steady stream of correspondence from ratepayers asking the Auditor-General to investigate the activities or decisions of their local authorities.

3.402
Issues commonly raised by ratepayers and organisations that interact with local authorities include:

  • whether or not the consultation processes (including identifying and considering options) are adequate;
  • whether or not consultation is genuine – ratepayers can perceive that consultation is a sham when the local authority’s decision is against the weight of submissions;
  • decision-making – including whether or not decisions are appropriately implemented by local authority officers, decisions are made within delegated powers, and councillor and management roles are clear;
  • rating equity;
  • accountability arrangements for grants and contracts with community-based and private-sector organisations;
  • use of, control over, and accountability for council-controlled organisations;
  • disposal of significant assets, particularly land;
  • allegations of conflicts of interest; and
  • code of conduct issues – in particular, increased interest in the use of the code of conduct by members of the public wishing to challenge local authority decisions.

The Auditor-General’s role

3.403
We receive about 160 requests each year for inquiries from ratepayers and organisations in the local government sector. Some people contact the Auditor-General because they are unhappy with a local authority’s decision and hope that the Auditor-General will require the local authority to reconsider the decision .However, it is not the Auditor-General’s role to consider the merits of a local authority’s decisions, prevent it making a decision, or ask it to change its mind. The Auditor-General also does not have any power to question matters of local authority policy. Making policy decisions is the role of elected representatives.

3.404
The Auditor-General is authorised under the Public Audit Act 2001 to inquire into any matter concerning a local authority’s use of its resources, either on request or on his own initiative, and, in addition to the annual financial audit, to conduct a more detailed performance audit of an aspect of a local authority’s performance. An inquiry or performance audit may involve looking into financial, accountability, governance, or conduct issues in a local authority. It is usual for an inquiry to focus on a local authority’s decision-making process and question whether or not the local authority has:

  • applied its resources effectively and efficiently and without waste;
  • complied with its legal obligations;
  • acted honestly and with integrity in its dealings; and
  • managed its finances prudently.

3.405
These functions are discretionary. The Auditor-General is not a formal complaints agency, and no-one can make the Auditor-General investigate a particular matter. Our usual approach is to invite the complainant to first raise the concern with the local authority concerned, unless there is good reason for not doing so. We always consider whether we are the most appropriate agency to consider the matter, and work closely with the Office of the Ombudsmen and the Parliamentary Commissioner for the Environment.

3.406
Some inquiries are straightforward, and are concluded by our writing to the local authority concerned and the original correspondent explaining our findings. However, other inquiries address more complex matters. We may, if the issues are significant, produce a public report that is presented to the local authority or Parliament.

3.407
We describe below some significant recent inquiries in the local government sector in the areas of decision-making, transport, and codes of conduct, to highlight some of the concerns raised by ratepayers and to show how we conduct our inquiries.

Decision-making

3.408
When asked to investigate a local authority’s decision, our focus is on the decision-making process, rather than the merits of the decision itself. We consider whether the local authority can demonstrate that it has complied with the principles in the Local Government Act 2002 (the 2002 Act), as well as the decision-making framework in Part 6 of the 2002 Act and any applicable council policies.

3.409
We have found variable levels of compliance with the decision-making framework in the 2002 Act. The following examples illustrate some different approaches.

Example 1

3.410
A ratepayer contacted us with several concerns about a city council. The ratepayer was concerned about:

  • a funding proposal that involved selling airport shares to a council-controlled organisation, then transferring redeemable preference shares to an investor;
  • accountability arrangements between the Council and a trust that received significant funding from the Council to build an events centre;
  • the Council’s extensive use of trusts to deliver activities;
  • a proposal to form a council-controlled organisation to develop a new town centre, rather than contract with the private sector; and
  • whether or not the Council’s debt levels were sustainable.

3.411
The ratepayer’s main concerns were the funding proposal and the Council’s relationship with the events centre trust, but we considered all concerns in our inquiry. We considered each concern in terms of:

  • whether or not the Council had complied with its statutory obligations, particularly whether or not the council had considered relevant principles and the decision-making requirements in the 2002 Act; and
  • whether or not the proposal showed a lack of probity or financial prudence by members or employees of the Council.

3.412
The funding proposal involved selling the Council’s shares in an airport company to a newly established council-controlled organisation, and issuing redeemable preference shares to an investor who would benefit from imputation credits attached to those shares. The Council was not able to benefit from the imputation credits, as it is not a taxpayer. The effect of the transaction was that the Council could raise funds from the investor at a cheaper rate than if the Council had borrowed the funds directly. The ratepayer was concerned that the proposal amounted to tax avoidance, as the investor would obtain a tax benefit at the expense of the Crown. The ratepayer was particularly concerned that the Council intended to proceed before obtaining a ruling from the Commissioner of Inland Revenue on the tax avoidance issue.

3.413
We reviewed a considerable amount of material, including external legal, taxation, and accounting advice obtained by the Council. We interviewed council officers who were closely involved in the proposal. We found that the reports of council officers to the Council were of high quality, and contained a comprehensive analysis and discussion of the provisions of the 2002 Act relevant to the decision. The Council had consulted on the proposal in its Long-Term Council Community Plan (LTCCP) and subsequent annual plan, and had considered the submissions it had received.

3.414
We did not agree with the ratepayer that the Council had acted inappropriately or that its actions lacked financial prudence or showed a lack of probity. We considered that the Council’s decision to proceed with the funding transaction before a binding ruling from the Commissioner of Inland Revenue was obtained did create risks. However, the Council had assessed those risks as low and decided to proceed, which was a decision it was entitled to make.

3.415
Concerning the Council’s involvement with the events centre trust, the Council had been involved with the Trust since the Trust was formed several years earlier. It had a large file on its dealings with the Trust. We reviewed all council documents, including a funding agreement between the Council and the Trust. We found that the Council was actively monitoring its investment in the Trust, and had a comprehensive and robust due diligence process in place to ensure that the Trust was meeting its obligations under the funding deed and other agreements. This was appropriate, given the significant level of council funding for the Trust. The ratepayer was unaware of the nature and extent of the Council’s monitoring regime for the Trust, so our inquiry informed the ratepayer in that respect.

3.416
We made similar findings in the other areas of concern raised by the ratepayer. Generally, we found that a very high level of compliance with the decision-making framework in the 2002 Act. This is what we would expect for a large, well-resourced city council. We considered that councillors were well served by the reports from council officers.

Example 2

3.417
A smaller local authority had a different, less formal approach to complying with the 2002 Act when making a significant decision.

3.418
At the Council’s request, we inquired into the Council’s decision-making process for changing the way rates were set in 2 urban wards in the district. The Council had been divided on the decision, and we also inquired into allegations of conflict of interest and bias by councillors in the decision-making process (none of which were upheld). We visited the Council and interviewed relevant councillors and council officers.

3.419
Concerning decision-making, we found that the process complied with legislative requirements and that councillors were given enough information on which to make the decision. The reports from council officers contained detailed information and analysis about the effect of the rating change on particular properties in each ward. However, we noted that the reports did not refer to the legislative framework in the 2002 Act; nor to its applicable principles.

3.420
This contrasted with the reports by the city council officers in example 1 (see paragraphs 3.410-3.416), many of which followed a template that worked through the provisions and principles in the 2002 Act relevant to the decision. However, in reaching conclusions we took account of the size and scale of the decision and the Council.

3.421
We asked councillors whether they would have found reports from council officers more helpful if they had included more analysis of the decision-making regime and principles of the 2002 Act relevant to the rating decision. The councillors said they did not consider the lack of legislative context to be important in the rating decision we reviewed.

3.422
Generally, in reviewing local authority decisions against the decision-making framework in the 2002 Act, we consider that references to the legislative framework appropriate to the particular matter, as well as applicable principles in the 2002 Act and the effect of social, economic, environmental, and cultural well-being, are useful to set the context and focus discussion at meetings. It is easier for a local authority to demonstrate that it has complied with statutory decision-making requirements when those requirements are referred to, and discussed, in reports and in minutes of meetings.

Example 3

3.423
Another significant inquiry raised issues about:

  • implementation of council decisions by council officers; and
  • informal meetings in the decision-making process.

3.424
A city council decided in March 2004 to embargo all future work on the Council’s civic offices, apart from essential maintenance, because the Council expected to develop new civic offices within the next 5 to 10 years and had provided funding for that purpose in its LTCCP. The embargo was proposed by a council committee as part of the Council’s 2004-05 planning process, and was adopted by the Council without discussion.

3.425
In April 2004, a Local Government Commission determination halved the number of city councillors with effect from the 2004 local authority elections. At the mayor’s request, council officers were asked for options to redevelop the existing council chamber to make it suitable for the smaller council and to have the upgraded chamber ready for the new council after the 2004 elections.

3.426
In August 2004, the mayor invited all councillors and executive staff to an informal presentation on proposed renovations to the council chamber. No minutes were taken. In October 2004, with the mayor’s approval, council officers let 2 contracts, totalling $802,336. One contract was to renovate the council chambers and the other related contract involved alterations to enable more council staff to be located in the civic offices. The second contract had not been discussed at the informal presentation.

3.427
We received a complaint from a former councillor that the expenditure on renovating the council chamber and the related contract was inconsistent with the earlier decision of the Council to embargo spending on the council buildings apart from essential maintenance.

3.428
We found that the expenditure was inconsistent with the Council’s embargo as the work was not “essential maintenance”. We also found that it should have been referred back to the Council for formal decision. We noted that the expenditure had been approved by the mayor following the informal presentation, and that no-one involved considered the effect of the earlier embargo.

3.429
The inquiry showed a need by the Council to consider the adequacy of its decision-making processes to ensure that decisions of the Council were actually implemented. In this case:

  • Council officers should have considered the effect of the embargo, given that the Council needed to continue to occupy the buildings for the next 5 to 10 years. This would have determined whether or not the embargo could be implemented.
  • Informal meetings are useful for sharing information and enabling discussion, especially of complex issues or information that may need to be explained by council officers. However, they are not able to be used for decision-making. In this case, the decision-makers involved attached significance to the fact that no objections to the expenditure on renovation had been made during the informal presentation. However, that did not remove the need for a formal decision-making process to occur, particularly as workshops and informal meetings do not have decision-making authority or allow for public transparency.

Transport consultation and decision-making

3.430
Issues arising from major local authority transport decisions have been the subject of ratepayer correspondence this year, particularly in the Wellington, Auckland, and Tauranga areas. The issues raised generally cover the adequacy of consultation undertaken, the lack of options in consultation, and the level of robustness of the underlying information that supports the decision-making processes.

3.431
Transport decision-making is subject to a range of decision-making processes. There are several major pieces of legislation that play a significant role at some stage in transport planning and decision-making:

  • the Land Transport Act 1998;
  • the Land Transport Management Act 2003;
  • the Local Government Act 2002; and
  • the Resource Management Act 1991.

3.432
There are many “layers” of government that have a role in decision-making processes at policy and implementation levels. Cabinet makes major transport investment decisions. At central government level, there are a number of agencies with a range of functions, such as the Ministry of Transport, Land Transport New Zealand, and Transit New Zealand. (There have also been organisational changes in 2004, with Transfund New Zealand and the Land Transport Safety Authority merging to form Land Transport New Zealand.)

3.433
Regional authorities are required to develop regional land transport strategies. These are sometimes supported or accompanied by regional land use plans or strategies, such as the Regional Growth Strategy in Auckland or Smart Growth in Tauranga. We would expect some level of convergence between these plans, but have not investigated this. However, we note that transport legislation for Auckland requires Auckland local authorities to change the policy statement and plans prepared under the Resource Management Act to integrate the land transport and land use provisions, and to make those provisions consistent with the Auckland Regional Growth Strategy.12

3.434
Local authorities are also required to develop land transport programmes. Section 13 of the Land Transport Management Act states that a local authority need not prepare a land transport programme if certain conditions are met – for instance, if the LTCCP includes all the relevant matters. In practice, however, local authorities engage in transport planning as part of their asset management and LTCCP planning, and the land transport programme becomes part of this planning process.

3.435
Many, but not all, aspects of transport decisions include some form of public consultation process. At a local level, community input is through formal consultation on draft plans, and sometimes through having representatives on regional land transport committees. LTCCPs must have been through a statutory consultation process, and community views must have been considered, before they are finally adopted. Land Transport New Zealand has indicated that national transport planners will be looking at LTCCPs to determine local and regional transport priorities.

3.436
In addition, once plans are determined, most transport infrastructure development would be subject to the Resource Management Act provisions through the consent process. This process also provides an opportunity for objections and a range of considerations to be heard in public.

3.437
This complex environment is a difficult one for the community to comprehend, for effective consultation and decision-making. We have been asked by ratepayers to inquire into whether or not consultation has been adequate, whether or not options provided to the public meet the legislative requirements, and whether or not information is robust.

3.438
Our local government team has looked at local authority processes by which information (both technical and from the community) is gathered, and the processes of decision-making.

3.439
We are considering these transport issues at both central and local government level, and will be maintaining a watching brief.

Codes of conduct

3.440
The Auditor-General received a number of enquiries over the last year in which ratepayers expressed concerns about some of their local elected members’ behaviour. The correspondents often sought the Auditor-General’s assistance in using the code of conduct to “control” what the ratepayer considered to be unsuitable behaviour.

3.441
Since 1 July 2003, local authorities have been legally required to have a code of conduct for their members. This was a new requirement introduced by the 2002 Act. An authority’s code of conduct must set out the understandings and expectations adopted by the authority about the manner in which members may conduct themselves, including how they behave toward each other, staff, and the public. The code must also cover members’ use and disclosure of information that they receive in their capacity as members.

3.442
The 2002 Act states that a member must comply with the code, but a breach is not an offence under the Act.

3.443
It is not our role to consider complaints under codes of conduct, or to enforce codes. Local authorities are responsible for dealing with such matters. The 2002 Act does not prescribe what mechanisms or sanctions should be in place to ensure that the adopted understandings and expectations are complied with, but most councils have included some form of committee (in some cases including external “impartial” members) to review complaints received by the public.

3.444
While the Auditor-General does not have a role in enforcing compliance with codes of conduct, we are undertaking a performance audit in the area. The audit will examine how local authorities have given effect to the new requirement, and how codes of conduct are being used by members, council staff, and the public. We will not question whether codes of conduct are a good or bad thing in themselves, but will focus on how local authorities are implementing the requirement and will comment on problems they may have encountered in doing so.

12: Local Government (Auckland) Amendment Act 2004, section 3(b).

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