Part 2: Reporting on activities in the annual report
2.1
In this Part, we review how local authorities have met the requirements in the Local Government Act 2002 (the Act) to include certain information in their annual reports.
2.2
Local authorities are required to report:
- how they will measure progress toward achieving community outcomes;
- what difference they are making to the social, economic, environmental, and cultural well-being of their communities; and
- the details of any significant assets they have acquired or replaced.
2.3
This is the sixth year that we have reported to Parliament about how well local authorities are meeting these particular requirements. Every year, we have seen annual reports that make the required information clearly available and annual reports that do not.
2.4
It is clear from our previous reviews of reporting by the sector,6 and from our review of annual reports for 2008/09, that substantial improvements are still needed. We have again concluded that local authorities' reporting is below the standard we expect.
2.5
These reporting requirements in the Act are currently under review. Simplification has been signalled, but there is still more the sector could do to improve the reporting of its performance.
2.6
In future years, we expect to see better reporting against these requirements in annual reports, given the improvements we have seen in the long-term council community plans (LTCCPs) for 2009-19.
2.7
We will be considering our reporting options and obligations where local authorities fail to provide relevant information or do not coherently address the reporting requirements of the Act.
The requirements in the Local Government Act 2002
2.8
The Act contains a comprehensive planning and reporting framework to help each local authority engage with its community on its intended actions (the planning phase), and to account for its actual performance against those intentions in the annual report (the reporting phase).
2.9
The Act requires the Auditor-General to audit aspects of local authorities' planning and reporting phases. We do this by auditing LTCCPs, which reflect local authorities' intentions for the next 10 years, and by auditing local authorities' annual reports.
2.10
The Act contains disclosure requirements for groups of activities relating to the LTCCP planning phase. These requirements establish a framework for reporting actual performance in the annual report. The requirements are set out in clauses 1 and 2 of Schedule 10 of the Act.
2.11
Clause 15 of Schedule 10 focuses on the reporting phase through the annual report. Disclosure requirements include disclosures about:
- any measurement of progress in achieving community outcomes;
- identified effects of local authority activities on the social, economic, environmental, and cultural well-being of their communities; and
- details about significant assets acquired or replaced.
Reporting groups of activities
2.12
The reporting requirements for groups of activities7 apply whether the activities are provided by the local authority, by a council-controlled organisation, or through any other delivery method.
2.13
Local authorities can group activities, as they consider appropriate, for the purposes of delivery, planning, and reporting.
2.14
The Act requires the annual report to be structured based on those groups of activities. For each group of activities, the annual report must identify:
- the activities within the group of activities;8 and
- the community outcomes to which the group of activities primarily contributes.9
2.15
For each group of activities, the annual report must also:
- report the results of any measurement of progress in achieving community outcomes;10 and
- describe any identified effects that any activity within the group of activities has had on the social, economic, environmental, or cultural well-being of the community.11
2.16
As well as information about any measurement by a local authority of progress in achieving community outcomes and any identified effects of activities, the annual report must include an audited statement of service performance:
- comparing actual levels of service for each group of activities against the intended levels of service (as set out in the LTCCP that covers that year); and
- giving the reasons for any significant variation between actual and expected levels of service provision.12
2.17
The annual report must also include one further audited statement that:
- describes and gives reasons for any significant acquisitions or replacements of assets in the year; and
- explains any significant variation between the acquisitions and replacements projected in the LTCCP and those actually made.13
What local authorities need to do to meet these requirements
2.18
Because of the above requirements, the annual report must include information about community outcomes, community well-being, levels of service provision, and asset acquisitions and replacements, to enable the community to evaluate the local authority's performance.
2.19
Figure 4 summarises the relevant legislative requirements about disclosing information in both the LTCCP (during the planning phase) and the annual report (during the reporting phase).
2.20
The darker shaded boxes show where, within the reporting phase, we focused our review and assessment of the 2008/09 annual reports.
Figure 4
Summary of related requirements for disclosing information in the long-term council community plan and annual report for each group of activities
| LTCCP (requirements are set out in clauses 1 and 2 of Schedule 10) | Annual report (requirements are set out in clause 15 of Schedule 10) |
|---|---|
| Describe the community outcomes, how they have been identified, how the local authority will contribute to their achievement and work with others to further them, and how they fit with other local authority strategies and processes. | |
| State the measures that will be used to assess progress towards achieving community outcomes.* State how the local authority will monitor and report on the community's progress towards achieving community outcomes (which must not be less than once every three years).** |
In relation to each group of activities, report the results of any measurement carried out during the year of progress towards achieving community outcomes. |
| For each group of activities, identify the activities within them. | For each group of activities, identify the activities within them. |
| Identify the rationale for delivery of the group of activities (including the community outcomes to which the group of activities primarily contributes). | Identify the community outcomes to which the group of activities primarily contributes. |
| Outline any significant negative effects that any activity (within the group of activities) may have on environmental, economic, social, or cultural well-being. | Describe any identified effects that any activity within the group of activities has had on environmental, economic, social, or cultural well-being. |
| Include a statement of intended service level provision for each group of activities. | Audited statement of service level provision. |
| Identify detailed information about assets required for each group of activities, including information about forecast acquisition and replacement. | Audited information about acquisition and replacement of assets. |
* Clause 1(f) of Schedule 10.
** Clause 1(g) of Schedule 10 and section 92(1).
2.21
In reviewing the 2008/09 annual reports, we focused on the three aspects more darkly shaded in Figure 4 for the following reasons:
- For the first aspect, reporting any measurement towards achieving community outcomes, we expected that some local authorities would have finalised the three-yearly progress report required by section 92. We expected those local authorities to have reported this in the annual report, along with any other measurement that was carried out during the year.
- For the two other aspects (describing identified effects, and information about acquiring or replacing assets), our previous reviews have shown that these are the least well addressed of the annual report requirements specified in the Act. They are also important elements of accountability.
Measuring progress towards achieving community outcomes
2.22
Community outcomes are a core part of the community engagement and accountability framework within the Act.14 Section 91 requires local authorities to carry out a process to identify community outcomes at least once every six years.
2.23
A local authority needs to decide, and state in the LTCCP, how it will measure and monitor progress in achieving community outcomes. It does this so that it can report on that progress in the three-yearly report required by section 92(1) and by clause 1 of Schedule 10.
2.24
Having consulted with other organisations and the community on desired outcomes, local authorities must work with relevant organisations and groups to agree on monitoring and reporting procedures, including how the local authority will use any monitoring done by those other organisations or groups.
2.25
The reporting requirement for the annual report is for a local authority to include the results of any measurement carried out during the year of progress towards achieving the desired community outcomes.
2.26
This can include any three-yearly reports completed in the year, but should also include any other measurement that has been carried out.
2.27
If no measurement is carried out in the year, we would generally expect a statement confirming this in the annual report.
2.28
In our view, the three-yearly report of progress towards achieving community outcomes should be finalised when the information it contains will be of most value for both a local authority and its community in preparing the next LTCCP. This means that the report should be prepared sooner than the latest date allowed by the Act.
2.29
Last year, we expected that some of the 2007/08 annual reports we reviewed would contain information about three-yearly reports, given the lead time involved in drafting and consulting on the next LTCCP (the final version of which had a statutory deadline of 30 June 2009) and the desirability of having the progress report available. About a quarter of local authorities had completed three-yearly reports on their progress in 2007/08 in achieving community outcomes, and disclosed this in their 2007/08 annual reports.
2.30
As part of our audit of the 2009-19 LTCCP, we asked local authorities about their intentions for producing a report based on section 92. Most local authorities that had not completed a three-yearly report in 2007/08 were finalising, or were planning to finalise, the three-yearly reports in the 2008/09 financial year.
2.31
Where local authorities failed to finalise the three-yearly report in time to benefit the preparation of the 2009-19 LTCCP, there is a risk that the LTCCP fails to capture all the relevant information about its community. There is also a risk that a local authority might need to amend its LTCCP because new information comes to light through the three-yearly report after the LTCCP is finalised.
What we found
2.32
A few local authorities had completed three-yearly reports during 2008/09, and disclosed this in the 2008/09 annual reports. Some of these local authorities provided a summary of the three-yearly report findings in the annual report. However, some local authorities merely stated that they had completed the three-yearly report, without providing any useful information about the findings. In our view, this does not meet the requirements of the Act.
2.33
Some of the local authorities provided comprehensive disclosures, and integrated this reporting with their other annual reporting and their performance management frameworks. Others did not.
2.34
Overall, the disclosures made by local authorities did not meet our expectations. Many local authorities did not provide the readers of the annual report with any indication of measurements carried out, or when any measurements were likely to be completed.
2.35
We expect a local authority to ensure that its performance management framework is an integrated package that links community outcomes with performance measures, targets, and levels of service. With such a linked framework, it is easier for local authorities to report on progress in achieving community outcomes and the identified effects of activities.
2.36
We will continue to monitor this, especially in the 2009/10 financial year. In 2009/10, local authorities will be reporting for the first time against their latest performance frameworks, as outlined in their 2009-19 LTCCP.
Identified effects of activities on community well-being
2.37
Another core part of the framework of the Act is the promotion of environmental, social, economic, and cultural well-being in the local authority's region, city, or district.
2.38
Local authorities must involve the community when promoting these four aspects of community well-being.
2.39
They are also required to report in their annual report on "any identified effects" (positive and negative) that any activity has on the social, economic, environmental, and cultural well-being of the community.
2.40
The fact that an effect must be "identified" means that it must be a measured or observed effect. A local authority needs a system for measuring the effects of its activities so that it can report on them.
2.41
We appreciate that this is not easy. It can be challenging for a local authority to identify and report on the full range of effects that an activity may have on social, economic, environmental, and cultural well-being. Some effects are more easily identified than others. For example, the positive environmental and social effects of a local authority's activities to improve recreational water quality in its district can be more easily measured and identified than the effect of providing museums, art galleries, and community centres on social and cultural well-being.
What we found
2.42
Overall, we observed little improvement in the information presented in the 2008/09 annual reports compared with the previous year. A significant proportion of local authorities still did not meet the requirements of clause 15(d) of Schedule 10 – that is, these authorities did not effectively identify the effects of activities on the well-being of the community. These requirements have been in place for five years, and we expected a better performance.
2.43
Many local authorities discussed the effects of their activities. However, many of the effects they identified appeared to repeat their aim or objective for that activity rather than report an identified effect. Local authorities need to distinguish between intended and identified effects. For example, the general statement in an annual report that "this activity contributes to economic and social well-being through protecting the safety of residents" is describing an intended effect rather than an identified effect.
2.44
Many local authorities failed to explicitly link any discussion of effects of activities to community well-being. Some of these links could be inferred, but this depended on the quality of the local authority's performance management framework, and in many cases these links were not clearly made.
2.45
Under the Act, an annual report is required to report any identified effects, negative or positive. Consistent with reporting against its LTCCP, which requires a local authority to outline any significant negative effects of its activities, a number of local authorities continue to identify only negative effects in their annual report.
2.46
A number of local authorities usefully discussed the risks associated with the effects of activities and how these were being managed. Local authorities that prepared better disclosures had highlighted the effect of their activities and projects on community well-being.
2.47
Overall, we conclude that many local authorities are still not meeting the requirements of clause 15(d) of Schedule 10 – to clearly report the identified effects of activities on the four aspects of community well-being. We are disappointed at the lack of progress made.
2.48
To better meet the requirements of clause 15(d), local authorities could, in particular:
- move from restating local authority aims in the annual report to identifying effects;
- move to specific consideration and analysis of the effects of activities rather than make generalised statements; and
- ensure that the performance management framework is an integrated package that links community outcomes and the rationale behind their activity to performance measures, targets, and levels of service. With such a linked framework, it is easier for local authorities to report on progress towards community outcomes and the identified effects of activities.
Acquisition and replacement of assets
2.49
The Act, through the LTCCP and the annual plan, creates the framework against which the annual report discloses actual results. This includes how assets will be maintained, replaced, and renewed, and how costs will be met.
2.50
Significant asset acquisitions and replacements are noted in planning financial forecasts, and are disclosed in the activity sections of the LTCCP.
2.51
The annual report must contain a statement describing any significant acquisitions or replacements of assets, giving the reasons for those acquisitions or replacements, and explaining any significant variation between acquisitions and replacements projected in the LTCCP and those actually made.
2.52
The Act requires us to audit the statements that set out the acquisitions and replacements of assets.
What we found
2.53
We saw only marginal changes in the information presented in the 2008/09 annual reports compared with the previous years. A significant number of local authorities still did not comply with the requirements of clause 15(f) of Schedule 10.
2.54
Some local authorities reported significant variations between the LTCCP and the actual asset programme. Few provided meaningful explanations for these variations.
2.55
Local authorities that did provide information on, and reasons for, the variations did so in different places in the annual report and, in some cases, in several places. Unless the variation and its reasons are clearly identified and explained in the same section, it is not easy to determine the difference between the LTCCP or annual plan projections and the actual expenditure or acquisitions that occurred during the year.
2.56
In some cases, variations between actual expenditure and projections were noted in the report by the mayor, chairperson, or chief executive, and in the financial statements and the statement of service performance. Providing high-level information on significant asset decisions in the mayor's or chairperson's report is useful for the public. However, the mayor's or chairperson's report is not subject to audit, and cannot include all the information required by the Act.
2.57
A small number of local authorities provided a list of all assets acquired and disposed of as a separate section in the annual report. They included the reasons for acquiring or disposing of those assets. Where the information and explanations were clear and thorough, they provided useful information about the local authorities' acquisitions and replacement of assets.
2.58
Where variations were reported in the financial statements section, they were often aggregated and not linked to the groups of activities to which the relevant assets related. This does not provide the most accessible information to the community about specific actions carried out by the local authority for significant assets, and does not provide the link to activities required by the Act.
2.59
Putting asset information with the other required disclosures of financial information and levels of service provision within the group of activities to which it relates keeps this information usefully together in one place.
2.60
Overall, we conclude that a significant number of local authorities still do not clearly address the requirements of clause 15(f). This is usually because they do not explain the reasons for the acquisition, replacement, or variation. In some cases, the local authority completely failed to address the requirements.
2.61
We remain concerned about this. Asset acquisition and replacement are important for sustaining and developing services and providing confidence to the community that those services will be affordably provided in the long term. Most local authority plans – including the LTCCP – centre on the sustainable delivery of desired levels of service. Identifying an appropriate asset development programme that incorporates acquisition and replacement is central to demonstrating sustainability of services. Without reporting actual performance against this information, an important aspect of accountability is missing, and information useful to the reader is not available.
Legislative reform
2.62
We note the current review of various provisions of the Act, including the nature and scope of reporting on activities. In our view, the review is warranted. Our findings, set out in successive reports, show that the sector is not managing this aspect of reporting particularly well. It matters because progress against outcomes and performance intentions (including asset maintenance and acquisition) are integral to any useful accountability report of a public entity.15
2.63
The reform process is yet to conclude its Parliamentary phases. Although there is a general call for simplification and clarity in such reporting – which we generally support – there is still much that local authorities can do to ensure that their plans and reports effectively disclose their service delivery intentions and performance to their communities.
6: Local Government: Results of the 2003/04 Audits, pages 61-87; Local government: Results of the 2004/05 audits, pages 14-16; Local government: Results of the 2005/06 audits, pages 14-21; and Local government: Results of the 2006/07 audits, pages 27-35; Local government: Results of the 2007/08 audits, pages 15-24.
7: An "activity" is defined in the Act as a good or service provided by, or on behalf of, a local authority or a council-controlled organisation, and a "group of activities" includes one or more related activities.
8: Clause 15(a) of Schedule 10.
9: Clause 15(b) of Schedule 10.
10: Clause 15(c) of Schedule 10.
11: Clause 15(d) of Schedule 10.
12: Clause 15(e) of Schedule 10.
13: Clause 15(f) of Schedule 10.
14: Community outcomes are under review as part of the current Transparency, Accountability and Financial Management reform, because there are concerns about the cost of the "outcomes process". See paragraphs 2.62 and 2.63.
15: See also our June 2008 discussion paper, The Auditor-General's observations on the quality of performance reporting.
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