Article 2: Transparency, Accountability and Financial Management reform

The amendments to the Local Government Act 2002 (the Act), known as the TAFM reform, have now been passed into law with immediate implications for us all.

The TAFM changes see some requirements removed and some new disclosures required in annual reports and long-term plans. Overall, the process leading to the amended Act has reinforced and confirmed the importance of long-term planning by local authorities.

Our review of the amended Act has identified four points that we would like you to consider as you address the effect of the changes on your local authority.

The pre-election report

Local authority chief executives are now required to prepare a pre-election report to provide information and promote public discussion about the issues facing the local authority at the time of the election. This requirement adds a new external report to the set of documents that each local authority is required to produce.

In our experience, the success and ease with which a local authority produces such statutory reports is strongly linked to the quality of the internal systems that support the production of the report. Given the tight time frame in which it must be produced,³ local authorities need to manage this carefully. To produce the report in an efficient and timely manner, you will need to have effective forecasting and reporting systems.

Financial strategy

The audits of the 2009-19 LTCCPs confirmed the view we had already expressed that the understanding and presentation of information related to financial strategy in local authority long-term plans could significantly improve.⁴ Many local authorities did not present and explain financial strategies clearly enough to help communities provide informed input.

Given our view, we support the requirements related to financial strategy in the amendments to the Act. Equally, we consider it important to recognise the Act provides a minimum standard of disclosure. Mere adherence to the disclosure requirements does not necessarily mean a council has actually prepared a financial strategy. It does require integrated thinking – drawing on its vision for the future financial state of the council (including its financial targets) with the decisions it has made and the choices in front of it through the proposed long-term plan. From this, a council can distil and affirm its financial strategy through effective consultation with its community.

The financial strategy can then be presented as one of the "right debate" issues in the long-term plan, which clearly sets out the proposed financial path with any related options and implications. It also means a suitable strategy will be identified that enables effective reporting through the annual report.

We expect the soon-to-be-released SOLGM guidance on financial matters related to long-term planning to assist local authorities in addressing the financial strategy requirements of the amended Act and improve the understanding of financial strategy overall.

Water

The TAFM changes related to water services focus on allowing local authorities to enter into extended-length contracts for water services. The changes are intended to facilitate private investment in water services through the use of build, own, operate, and transfer (BOOT) schemes.

This change to the legislation opens up opportunities for local authorities to consider alternative procurement options for water services. As with any procurement process, it is important to complete a thorough investigation to consider the options available and the related implications, and to develop a robust business case to support any procurement proposal.

For further guidance and good practice information about procurement, please refer to our good practice publication released in June 2008.⁵

Reporting on performance information in the long-term plan

As part of the changes to the Act, sections 84(4)(c) and 94(1)(c) have been repealed. Previously, these sections required the audit opinion on the LTCCP statement of proposal and the final LTCCP to specifically comment on the quality of the performance framework. The repeal of these sections means that this is no longer required.

However, the performance framework remains an important component of every long-term plan. Other amendments to the Act set out a number of new requirements that confirm the importance of performance reporting, including mandatory performance measures to be applied by all local authorities.

For the purpose of clarity, we note that the repeal of these sections will not change the requirement for auditors to consider the performance framework as part of the audit of the long-term plan.

3: We note that there are some dispensations regarding the inclusion of current year information for those local authorities with populations below 20,000.

4: For further details on our views regarding financial strategy in the 2009-19 LTCCPs, refer to our report Matters arising from the 2009-19 long-term council community plans, which is available on our website www.oag.govt.nz.

5: Procurement guidance for public entities.