Part 2: Invercargill City Council and its subsidiary companies

Local government: Results of the 2006/07 audits.

Invercargill City Council (the Council) and its subsidiary companies have consistently been unable to meet statutory requirements for the timeliness of annual reports.1 We specifically drew attention to this for the first time in our 2005/06 report.2

Our appointed auditor has finally been able to conclude and report on the Council and its subsidiary companies for the financial years ended 30 June 2005 and 30 June 2006. The audit opinions were dated in February 2008, some 32 and 20 months after the end of the respective financial years.

The opinions for the Council were affected by the audit results of its subsidiaries and, in particular, its works company Bond Contracts Limited and its subsidiary company Bendigo Construction Limited. We had to issue a qualified audit opinion for the subsidiary company, which affected its parent company and ultimately the Council.3 Further, because of the delay in finalising the draft financial statements for Bond Contracts Limited and its subsidiary company, the audit was also affected by Bond Contracts Limited's shareholders agreeing to a partial sale of Bond Contracts Limited and its subsidiary company to an external investor.

As yet, we have been unable to issue an audit opinion on the Council and its subsidiary companies for the financial year ended 30 June 2007.

Implications for the Invercargill community

In 2005/06, we stated that the situation regarding the clearance of the financial statements was unsatisfactory. This remains the case given that the Council's annual report for 2006/07 remains outstanding.

In addition to the delay in concluding satisfactorily on their annual report, we also concluded adversely on the Council's 2006-16 LTCCP4 because the LTCCP did not fulfil its statutory purposes and was “not fit for purpose”. Importantly, our opinion noted that it was not possible for us to affirm that the level of proposed expenditure during the life of the LTCCP will deliver the levels of service proposed or that the expenditure was consistent with the underlying information available to the Council. Further, the performance information could not be adequately linked to the disclosed performance measures. The Council could not identify that all funding of individual groups of activities came from appropriate sources of funding. Therefore, we were unable to conclude that the LTCCP was financially prudent.

The combination of a lack of a credible plan and the difficulty in finalising the Council's annual reports means that the Invercargill community cannot hold its elected members to account. It also means that external auditors cannot give assurance that community resources have, or will be, managed appropriately.

We have noted recently that the councillors of Invercargill City have expressed concern about the lack of quality of the 2006-16 LTCCP. They have publicly stated that they expect management to improve the 2009-19 LTCCP. Therefore, we have met informally with the Council to discuss the most important aspects of preparing an LTCCP and matters associated with the ongoing delays in completing their annual report. Management have also expressed a commitment to rectify Council's planning and reporting.

While the Council has acknowledged the need to improve its accountability, we remain concerned that the Council's planning and reporting need to improve substantially. The current situation does not set a good example of responsible public management for other councils and communities.

1: The comments in this Part relate to Invercargill City Council, Invercargill City Holdings Limited, and Bond Contracts Limited and Group.

2: See paragraph 1.103, Local government: Results of the 2005/06 audits, parliamentary paper B.29[07b], June 2007.

3: Refer to the Appendix. The qualifications for Bond Contracts Limited and Bendigo Construction Limited are detailed in the section “Disclaimers of opinion”. The effect on Invercargill City Holdings Limited and Group is detailed in the section “Except-for opinions”.

4: See pages 121 and 122, Matters arising from the 2006-16 Long-Term Council Community Plans, June 2007.

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