Appendix: Description of non-standard audit opinions issued

Full adverse audit opinions

Carterton District Council

Overall, Carterton District Council’s LTCCP did not fulfil its statutory purposes (see section 93(6) of the Act) - it was not, in our view, fit for purpose. This was our conclusion at the time of preparation of the LTCCP Statement of Proposal and the final LTCCP. The underlying records were insufficient to support the prospective information - both the prospective information relating to the levels of service that the council will provide the ratepayer, and the associated operational and capital expenditure required to be incurred.

The inadequate underlying information predominantly related to infrastructure asset information. The inadequacy of the information means that the council’s costs could be materially misstated. Further, it remains uncertain whether the council can deliver the levels of service agreed with the community. The council also could not adequately identify that all the funding came from appropriate sources for the individual groups of activities. Because of the cumulative effect of these fundamental issues, we were unable to affirm that the plan is financially prudent (see section 101 of the Act).

(In the 2006/07 financial year, Carterton District Council agreed to amend its 2006-16 LTCCP to rectify the deficiencies identified in our audit opinion. Because of the extent and quality of this work to upgrade the underlying information supporting the LTCCP, our auditor was able to amend this adverse opinion on the 2006-16 LTCCP and issue an unqualified opinion on the LTCCP Statement of Proposal. Consultation on the amendment was held concurrently with the council’s 2007/08 Annual Plan consultation process.)

Invercargill City Council

Overall, Invercargill City Council’s LTCCP did not fulfil it statutory purposes - it was not, in our view, fit for purpose. This was our conclusion at both the time of preparation of the LTCCP Statement of Proposal and the final LTCCP. We formed this view based on the cumulative effects of either inadequate or inconsistently applied underlying information. This underlying information predominantly was infrastructure asset information associated with the council’s major service activities of water and roading. It is not possible to affirm that the level of proposed expenditure over the life of the plan will deliver the levels of service or that the expenditure was not materially misstated. Further, the performance information could not be adequately linked to the disclosed performance measures. The council also could not identify that all funding of individual groups of activities came from appropriate sources of funding. These issues are fundamental, and we were unable to confirm that the LTCCP was financially prudent.

While this matter did not affect our overall audit opinion, we did note that the summary of the LTCCP Statement of Proposal did not alert the reader to our views about the inadequacy of the underlying information. As this is important for the readers to know, we consequently formed the view that the summary only partially complied with the statutory responsibility to disclose all major matters from the LTCCP Statement of Proposal (see section 89(a) of the Act).

Timaru District Council

At the time of preparation of Timaru District Council’s LTCCP Statement of Proposal, we qualified our overall audit opinion because the prospective financial information assumed that the effect of price changes during the 10 years of the plan was nil. In our view, this meant the financial information provided in the prospective financial information (including the groups of activities) was not based on the best information currently available to the council, nor could it demonstrate prudent financial management in terms of section 101 of the Act. The council did provide supplementary information with the LTCCP Statement of Proposal, in which the prospective Income Statement was adjusted for future price changes. However, in our view, the price change assumptions were applied inconsistently and rendered the supplementary information inadequate. Consequently, we concluded that this additional information was incomplete and could be misleading.

However, between the LTCCP Statement of Proposal and finalisation of the LTCCP, the council did provide revised supplementary information which indicated that the future rates requirement was cumulatively understated by $33.7 million. As a result of the revised supplementary information provided by the council, we were able to affirm that the plan - if adjusted for the effects of price changes - is financially prudent. This meant that, while our overall audit opinion retained its qualification on the adequacy of the prospective financial information provided, we could - with the aid of the revised supplementary information - conclude positively on the prudence of the overall final LTCCP.

Waitomo District Council

We qualified our audit opinion on Waitomo District Council’s LTCCP because we formed the view that the adopted plan was not sustainable and, therefore, not financially prudent. As a result of this conclusion, we consider that the LTCCP is not fit for purpose. This was our conclusion at both the time of preparation of the LTCCP Statement of Proposal and the final LTCCP. While the council’s LTCCP acknowledges substantial issues in delivering the desired levels of service, it contained a funding mix - involving rates increases and, importantly, debt - that was unsustainable. We saw no evidence to indicate that the proposed strategy of increasing debt would correct either within or after the end of the LTCCP’s 10-year horizon.

Although it did not affect our overall audit opinion, we did note that the summary of the LTCCP Statement of Proposal did not alert the reader to our views about the inadequacy of the underlying information. As this is important for the readers to know, we consequently formed the view that the summary only partially complied with the statutory responsibility to disclose all major matters from the LTCCP Statement of Proposal.

Except-for audit opinions

Central Otago District Council

We qualified our audit opinion on Central Otago District Council’s LTCCP because the council did not follow its own accounting policies in preparing the prospective financial statements. The accounting policies of the council state that fixed assets will be periodically revalued. Estimated future revaluations were not incorporated into the prospective financial information. This affects forecast asset values and the estimate of depreciation. The implication of this omission is that both asset values and depreciation are likely to be misstated.

The audit opinion on the LTCCP Statement of Proposal was further qualified as the statement did not apply the council’s current development contribution policy. In preparing the draft LTCCP, the council elected to use an older policy, which meant that the forecast financial statements were not consistent with the policies on which they were prepared. The council chose to follow its adopted policy when finalising the LTCCP. This enabled this aspect of the LTCCP Statement of Proposal qualification to be removed

Gisborne District Council

Gisborne District Council’s LTCCP Statement of Proposal and final LTCCP were qualified as neither document clearly set out the council’s desired levels of service. Consequently, the LTCCPs did not establish an adequate link between forecast expenditure and what the council was trying to achieve through that expenditure. This affected our view on the reasonableness of the underlying information and the meaningfulness of the performance measures.

Kaikoura District Council

Kaikoura District Council did not include asset revaluations in its prospective financial statements of the LTCCP, which implies that asset values and depreciation are likely to be misstated. In addition, the council had not completed a water and sanitary services assessment, as required by section 125 of the Act. Both these matters affected the council’s LTCCP Statement of Proposal and final LTCCP.

Another matter that affected the council’s LTCCP Statement of Proposal was that the prospective financial statements did not adequately account for an estimate of vested assets. This matter was rectified by the final LTCCP, so it was omitted from the final non-standard audit opinion.

Napier City Council

Napier City Council chose not to adjust its forecast capital expenditure for the effect of estimated future price changes. Consequently, the probable effect is that projected funding requirements in respect of that expenditure are understated. This means that the LTCCP does not reflect the best information available to the council, in relation to this capital expenditure and its funding requirements,

This matter also affected the LTCCP Statement of Proposal, which the council used to consult with its community.

Matter of emphasis audit opinion

Porirua City Council

The prospective statement of financial performance for Porirua City Council projected successive losses. This matter applied to both its LTCCP Statement of Proposal and the final LTCCP. Operating revenue had not been set at levels sufficient to match operating expenditure. These deficits were attributed to the council resolving not to fund depreciation on infrastructure assets. However, the council considered that such forecasts still represented a financially prudent position.

The position adopted by the council is important in the consideration of what is an equitable allocation of responsibility for funding between generations, and we considered it important to disclose it.

We note that the matter of emphasis is a non-standard audit opinion, but does not represent an actual qualification of the forecast information. Rather, it draws the reader’s attention to a matter of significance in reading and assessing the information provided by the council and the strategies on which those forecasts are based.

Minor qualifications that did not affect our overall audit opinion on the LTCCP

Chatham Islands Council and Dunedin City Council

Both Chatham Islands Council and Dunedin City Council failed to complete a water and sanitary services assessment, as required by section 125 of the Act. This affected both of their LTCCP Statements of Proposal and final LTCCPs.

Horizons Regional Council, Northland Regional Council, Selwyn District Council, Tasman District Council, Waimate District Council, Waitaki District Council

In our view, the summaries prepared by these councils and used to consult with the public over the draft LTCCP were inadequate. While this matter did not affect our overall audit opinion on the final LTCCP, the summary is intended to provide important information for the readers. We concluded that the summary only partially complied with each council’s statutory responsibility to disclose all major matters from the LTCCP Statement of Proposal (see section 89(a) of the Act.

This matter only affected the final LTCCP and not these councils’ LTCCP Statements of Proposal.

Non-standard audit opinions on the LTCCP Statement of Proposal that did not carry forward to the opinion on the final LTCCP

Horowhenua District Council

Horowhenua District Council’s LTCCP Statement of Proposal was non-standard because, in our view, it failed to reasonably estimate development contribution revenue arising from a fair application of the council’s adopted policy. Rather than include a cumulative estimate of development contributions amounting to $987,000, no amount was included.

The matter was corrected for the final LTCCP so our audit opinion was unqualified.

Stratford District Council

Stratford District Council’s LTCCP Statement of Proposal received a non-standard audit opinion on the basis that it inconsistently outlined the desired levels of service and the associated performance measures. It did not present a complete forecast and performance framework to its community.

The council chose to review the information provided in the final LTCCP. Because of the improvements that were made, we were able to issue an unqualified audit opinion on the final LTCCP.