1.1 Review of the 2005/06 year

Local government: Results of the 2005/06 audits.

For 2005/06, local authorities prepared annual reports under the provisions of the Local Government Act 2002 (the Act). This was the second year that all local authorities reported on this basis, and the requirements of the Act continued to be a challenge.

Local authorities are required to adopt audited annual reports by 31 October each year – four months after balance date. Two local authorities were unable to meet this requirement in 2006.

While valid reasons prevented some local authorities from timely reporting, one council – the Invercargill City Council – and its associated group is yet to report on both the 2004/05 and 2005/06 financial years. This lack of reporting by the council and its group is unsatisfactory.

We are concerned about the timing of the release of financial information to communities by local authorities. Twelve local authorities (excluding Invercargill City Council) – the same number as 2004/05 – were unable to provide their communities with audited summaries of their annual reports within the required one month of adopting their audited annual report. Again, we see this result as unsatisfactory.

The Act also requires local authorities to disclose:

  • information on the effects of their activities on the social, economic, environmental, and cultural well-being of their communities; and
  • actual levels of service provision and the acquisition and renewal of assets compared to that planned.

As with 2004/05, the results of the sector reporting are, at best, mixed. In our view, local authorities need to focus on the quality of annual report disclosures and the timeliness of report production and availability to the community.

Local authorities have been subject to these requirements for two years (and to similar requirements under the Act’s predecessor, the Local Government Act 1974). We will be obliged to consider our reporting options in the event that any local authorities fail to report adequately to their communities in future.

The 2006-16 Long-Term Council Community Plan (LTCCP) was a major focus for all local authorities in 2005/06. Similarly, the LTCCP presented a substantial challenge for us, our appointed auditors, and their teams. In 2005/06, we continued to focus on our audit methodology and training audit teams. We also had extensive discussions with the sector and individual local authorities on the implications of the first-time LTCCP audit and the need for careful project-based planning in preparing the LTCCP.

We report fully on the matters relating to our audits of the 2006-16 LTCCPs in a separate report to Parliament.1

Matters discussed in this report

We discuss in more detail later in this report:

  • council-controlled organisations (CCOs);
  • non-standard audit reports;
  • New Zealand equivalents to International Financial Reporting Standards (NZ IFRS); and
  • development contributions.

Council-controlled organisations

Local authorities continue to be associated with CCOs. There are still some issues about adequately preparing the statement of intent (SOI) or, where relevant, exempting CCOs from the SOI and annual report process (see article 1.4, Non-profit council-controlled organisations). The concept of “public entity” and accounting for public entities is not limited to CCOs, but does apply to them.
A number of entities continue to dispute their status (see article 2.2, Trusts controlled by local authorities – eff ect of the Public Audit Act 2001).

Non-standard audit reports

We continue to issue a number of qualified audit opinions. Consistent with 2004/05, most adverse opinions generally relate to entities set up to manage cultural and heritage collections.2 Accounting for these types of collections remains an issue for the sector and auditors.

New Zealand equivalents to International Financial Reporting Standards

In addition to the pressure of reporting on 2005/06 and preparing 2006-16 LTCCPs, local authorities also faced the pressure of early adoption of NZ IFRS. While early adoption is logical, we are concerned that the sector has yet to fully cope with the issue of conversion to NZ IFRS. Consequently, it may well threaten local authorities’ ability to complete timely reporting on the 2006/07 financial year. In
our view, some local authorities have shown undue reliance on our audit teams to
solve their problems.

Development contributions

Development contributions are the most controversial addition to the revenue-raising
powers of local government – particularly as they relate to property developers. Many local authorities have introduced policies on development contributions for the fi rst time through their 2006-16 LTCCPs, and some have amended their policies since they were adopted for 1 July 2006.

Policies on development contributions are complex – even after the recent release of the High Court decision on North Shore City Council.3 The local government sector will need to monitor such matters closely. Local authorities might benefi t
from a sector-wide agreement on an approach that meets the legal requirements of the Act and that is also equitable between the interests of developers and the community.


Local authorities and our audit teams worked closely to enable local authorities to
meet their statutory obligations to:

  • report to their communities through audited annual reports and summaries;
  • carry out a signifi cant planning process with their communities through their audited 2006-16 LTCCPs; and
  • prepare and complete the LTCCPs, as well as prepare for reporting their 2006/07 annual reports on an NZ IFRS-compliant basis.

Dealing with these issues has made an extensive call on the sector’s expertise and resources, as well as on those of this Offi ce, including our audit service providers.

The challenges of 2006/07 will include the fi rst-time preparation of an annual report comparing performance against a complete and audited LTCCP, and “keeping an eye” on planning and preparing for the 2009-19 LTCCP. These challenges will require the sector and auditors to continue the co-operation and goodwill shown in 2005/06.

1: Matters arising from the 2006-16 Long-Term Council Community Plans, parliamentary paper B.29[07c], ISBN 0-478-18187-6 (June 2007).

2: Local government: Results of the 2004-05 audits, parliamentary paper B.29[06b], ISBN 0-478-18159-0, pages 27-33.

3: Neil Construction Limited and others v North Shore City Council (unreported, High Court, Auckland, CIV 2005-404-4690, 21 March 2007, Potter J).

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