Introduction

This is our report on the 2007/08 audits of the local government sector. Most of these audits were of regional and territorial local authorities and their subsidiary entities.

This was the fourth year that all regional and territorial local authorities reported under the full requirements of the Local Government Act 2002 (the Act). It was the second year after the sector's adoption of the New Zealand equivalents to International Financial Reporting Standards (NZ IFRS). Under the Act, the Long-Term Council Community Plan (LTCCP) is now the basis of a local authority's annual financial and performance accountability to its community, and 2007/08 was the second year that each local authority reported against its audited 2006-16 LTCCP.

Purposes of this report

The purposes of this report are to:

• tell Parliament and the local government sector about matters arising from carrying out our role as auditor of the sector;
• describe some of the inquiries we undertook in the sector during the period;
• highlight some matters and make some observations on various sectors such as ports and licensing trusts; and
• summarise the findings from our performance audits and other work carried out during the year that affect local government.

Review of 2007/08

The 2007/08 year was the first year of the new triennium for local authorities following the October 2007 local body elections. By the end of 2008, the work associated with preparing the 2009-19 LTCCPs was dominating the sector. This was needed to enable local authorities to consult on and adopt their LTCCP by 30 June 2009. In these circumstances, it was important that local authorities had "cleared the decks" of their 2007/08 accountability obligations so they could focus on planning.

We are pleased to note that local authorities achieved this, and by Christmas 2008, all local authorities had adopted their audited annual reports. This included those outstanding annual reports from years before 2008 which had been a feature of our report on 2006/07.

Annual reports for 2007/08 again required local authorities and our audit teams to deal with reporting on a basis consistent with NZ IFRS. Timely reporting on an entity's financial results must be "a given" and again it was pleasing that NZ IFRS did not unduly affect reporting. However, we do not underestimate the effort needed to produce all the information required to comply with NZ IFRS. Unlike previous years, this report does not discuss NZ IFRS or its effect. A separate report to Parliament will deal with matters associated with NZ IFRS.

In this report we continue our practice of analysing the timeliness of local authority reporting. The adoption of the annual report within the statutory time frame is one aspect of accountability, but it is equally important for understandable information to be in the hands of the local community to whom a local authority is accountable. Although there has been an improvement in the timeliness of adopting annual reports, regrettably the sector has been less successful in the timely release of audited summaries of their financial statements to their communities.

We continue our annual review of how local authorities report on the effects of their activities on economic, social, cultural and environmental well-being of their communities, and we also consider the ongoing matter of leaky homes, with a focus on the those local authorities primarily affected by this matter.

Beyond 2007/08

The local body elections were held in October 2007, ushering in new councils across the country. A number of local authorities immediately sought to make decisions that they considered were aligned with the mandate given them by their communities through the elections. A number of these decisions were referred to us for inquiry and we chose to consider three high-profile decisions. We summarise the outcome of these inquiries in this report. Newly elected councils will inevitably face these situations again.

In 2008 we issued our good practice guide Procurement guidance for public entities. We are putting a greater focus on the public sector approach to procurement, including in the local government sector. Increasingly we will look to see how local authorities adopt and use the procurement principles set out in the guidance, and how they assure themselves that their procurement arrangements are effective and efficient. An overview of these principles is included in this report.

The financial year 2009/10 will be the first year in which annual reports are prepared on the basis of the new 2009-19 LTCCPs. The quality of the performance information included in annual reports is as important as the financial information. Accountability is only served when both elements of reporting are adequate. Part 11 of this report discusses the importance of performance information and notes our change of focus for the 2009/10 annual audit.

We complete this report by noting other guidance and performance audits relevant to the sector in the areas of regulation of liquor licensing and fees and charges.

We recommend this report to the local government sector for its consideration.

Conclusion

The local government sector has come through the 2007/08 financial year in reasonably good shape to face the challenges of the 2009-19 LTCCPs. However, as the sector moves forward, it is always useful for it to cast an eye back on what has happened. This report summarises the key issues that arose in 2007/08, comments on what has been achieved, and notes some issues for the sector to consider from here on.