Part 6: About the audit reports issued in 2013
6.1
In this Part, we provide an overview of the audit results37 for local authorities and other entities within local government.
6.2
Figure 11 shows that we issued 631 audit reports on local government entities during the year ended 31 December 2013.38 Of the 631 reports, 543 were standard audit reports and 88 were non-standard audit reports.39
Figure 11
Audit reports issued on local government entities
| Number of audit reports issued | Number of standard audit reports issued | Number of non-standard audit reports issued | ||||
|---|---|---|---|---|---|---|
| Unmodified opinion but including an "emphasis of matter" paragraph/s | Modified opinion (Qualified) | Modified opinion (Adverse) | Modified opinion (Disclaimer) | |||
| Local authorities | 77§ | 73 | 3 | - | - | 1 |
| Council-controlled organisations | 181§§ | 142 | 22 | 5 | 12 | - |
| Energy companies and subsidiaries | 69 | 69 | - | - | - | - |
| Airports and subsidiaries | 23 | 23 | - | - | - | - |
| Port companies and subsidiaries | 30 | 29 | 1 | - | - | - |
| Miscellaneous other local government entities | 94* | 81 | 6 | 2 | 5 | - |
| Small entities | 157** | 126 | 2 | 25 | - | 4 |
| Total | 631 | 543 | 34 | 32 | 17 | 5 |
§ This number includes one audit report for the previous financial period.
§§ This number includes 15 audit reports for previous financial periods.
* This number includes eight audit reports for previous financial periods.
** This is made up of Administering Bodies and Boards, Cemeteries, Fish and Game Councils, and Local Authority Sinking Fund Commissioners. This number includes 28 audit reports for previous financial periods.
6.3
We compared the results of our audit reports issued in 2013 with our audit reports issued in 2012 for any emerging trends or patterns. There was no significant difference in the number of standard and non-standard audit reports issued during 2012 and 2013 for the sector as a whole. Nor did we observe or identify any trends or significant changes between years.
Unmodified opinions with "emphasis of matter" paragraphs
6.4
We drew attention to disclosures in Kaipara District Council's financial statements for 2011/12 about:
- Kaipara District Council having going-concern issues and risks to financial viability because it depended on:
- the continuing financial support of bankers and getting enough revenue from development contributions to help service debt;
- addressing legal matters associated with past targeted rates;
- adopting and putting into effect its 2012-22 long-term plan; and
- being able to collect all rates levied, to manage cash flows;
- legal matters associated with targeted rates that lacked proper statutory authority, because of errors in setting them, and the contingent liability that would follow should any legal challenge result in the Council having to refund rates to ratepayers; and
- the Auditor-General agreeing to proceed with an inquiry into the Council's planning, development, implementation, and oversight of the Mangawhai community wastewater scheme.
6.5
We drew attention to disclosures in Kaipara District Council's financial statements for 2012/13 about:
- legal matters associated with targeted rates that lacked proper statutory authority because of errors setting them, and the contingent liability that would follow should any legal challenge result in the Council having to refund rates to ratepayers; and
- the Auditor-General agreeing to proceed with an inquiry into the Council's planning, development, implementation, and oversight of the Mangawhai community wastewater scheme.
6.6
We drew attention to disclosures in Taupo District Council and Group's financial statements for 2012/13 that referred to the breach of the Act because the Council failed to adopt its 2012-22 long-term plan by 1 July 2012.
6.7
A long-term plan is needed to provide for integrated decision-making, as a basis of accountability to the community and setting valid rates under the Rating Act. Because the Council did not adopt the long-term plan until 24 September 2013, the Council has applied to the Department of Internal Affairs for an Order in Council to validate the late adoption of the long-term plan as if had been adopted before 1 July 2012.
6.8
We drew attention to the serious financial difficulties and resulting uncertainties about the appropriateness of the use of the going-concern assumption in our audit report for 2012/13 on Inframax Construction Limited, which is a subsidiary of Waitomo District Council.
6.9
We drew attention to the disclosures in the financial statements for 2012/13 about the uncertainties in measuring the fair value of shares in incubator and accelerator companies because of the early-stage nature of the investments and the absence of quoted market prices for two subsidiaries of Greater Wellington Regional Council:
- Grow Wellington Limited and Group; and
- Creative HQ Limited.
6.10
We drew attention to disclosures that set out uncertainties about the validity of the going-concern assumption for five public entities for 2012/13:
- Infracon Limited, a subsidiary of Tararua District Council;
- Central Plains Water Trust, a trust set up by Selwyn District Council and Christchurch City Council;
- North Tugz Limited, a subsidiary of Ports of Auckland Limited and Northport Limited;
- New Zealand Local Government Insurance Corporation Limited and Group (trading as Civic Assurance); and
- Tamaki Redevelopment Company Limited.
6.11
We drew attention to the uncertainties associated with the outstanding claims provision and reinsurance receivables of the New Zealand Mutual Liability Riskpool Scheme and the appropriateness of the going-concern assumption for New Zealand Mutual Liability Riskpool for 2012/13.
6.12
We drew attention to disclosures about the New Zealand Local Authority Protection Programme Disaster Fund for 2012/13 preparing special-purpose financial statements and the uncertainty about the gross claim liabilities and the related reinsurance recoveries from the Canterbury earthquakes of 2010 and 2011.
6.13
We drew attention to disclosures about Athol Cemetery Trust preparing one statement of accounts covering 19 years (1993 to 2012).
6.14
We drew attention to eight disclosures about the going-concern assumption appropriately not being used because a public entity had been or was about to be disestablished. The public entities were:
- Christchurch Stadium Trust, a trust which had forecast financial difficulties and required additional support from external parties (for 2012);
- Selwyn Investment Holdings Limited and Group, a subsidiary of Selwyn District Council (for 2012/13);
- Lakes Environmental Limited, a subsidiary of Queenstown-Lakes District Council (for 2012/13);
- Lakes Leisure Limited, a subsidiary of Queenstown-Lakes District Council (for 2012/13);
- S C Aoraki Development Trust, a Trust controlled by Timaru District Council (for 2012/13);
- Timaru District Promotion Trust, a Trust controlled by Timaru District Council (for 2012/13);
- Taranaki Provincial Patriotic Council (for 2010/11); and
- Puhoi Cemetery Board, which was to be vested in Auckland Council on 25 September 2009 (for 2009/10).
6.15
In five instances, we drew attention to the disclosures that a statement of service performance had not been included in the annual report because the public entity was inactive:
- Tauwhareparae Forests Limited, a subsidiary of Gisborne District Council (for 2012/13);
- Westland Nature Trust, a trust controlled by Westland District Council (for 2012/13); and
- Kaikoura Community Charitable Trust, a trust controlled by Kaikoura District Council (for 2009/10, 2010/11, and 2011/12).40
6.16
We drew attention to the disclosures that Regional Software Holdings Limited, a company owned by six regional councils, had failed to issue a statement of intent for 2012/13 but reported performance information for that year.
6.17
We drew attention to the fact that six public entities failed to issue a statement of intent for the year after the reporting year:
- Luggate Nominee Limited, a council-controlled organisation in the Dunedin City Council group (for 2007/08);
- West Coast Rural Fire Authority (for 2003/04);
- Canterbury Development Corporation Holdings Limited and Group, a subsidiary of Christchurch City Council (for 2012/13);
- Canterbury Development Corporation and Group, a subsidiary of Christchurch City Council (for 2012/13);
- New Zealand Food Innovation South Island Limited, a subsidiary of Christchurch City Council (for 2012/13); and
- CRIS Limited and Group, a subsidiary of Christchurch City Council (for 2012/13).
Modified opinions
Disclaimers of opinion
6.18
During 2013, we expressed disclaimers of opinion on the financial or service performance information of three public entities.
6.19
We expressed a disclaimer of opinion on the statement of financial position and the operation statement of Oakura Reserve Board (for 2008/09) because we could not get:
- signed representation letters and statements required by legislation from the Board; and
- enough assurance about the completeness of revenue and expenditure because of limited controls over that revenue and expenditure.
6.20
We expressed a disclaimer of opinion about the annual report of Christchurch City Council and Group (for 2012/13) because we were unable to form an opinion on the Council and Group's financial statements as a whole, other than the statement of cash flows, because of the significant damage to the Council's assets caused by earthquakes.
6.21
The Council could not account for the effect of the earthquakes on assets because it could not estimate the cost to repair the assets. However, the Council disclosed that the earthquakes had damaged its assets and made collating financial information more difficult. Specifically:
- We could not get enough assurance that the value of the property, plant, and equipment assets (valued at fair value) was correct, because no market evidence was available to perform a revaluation in keeping with the requirements of New Zealand Equivalent to International Accounting Standard 16: Property, Plant and Equipment (NZ IAS 16).
- Although there was a material change in the replacement costs for infrastructure assets (valued using depreciated replacement cost), no revaluations could be carried out and appropriate replacement cost rates could not be worked out reliably enough.
- The surplus for the year for the Council and Group did not reflect the total losses from writing off irreparable assets and the other comprehensive income information did not reflect the total impairment of damaged, but reparable, assets and revaluations for assets that should be revalued.
- We could not rely on the comparative information in the 2012/13 financial statements.
6.22
Although we could not form an opinion on Christchurch City Council and Group's financial statements as a whole − other than the statement of cash flows − we were able to get enough audit evidence for the information in them except for:
- the carrying amount of property, plant, and equipment, asset revaluation reserves, and retained earnings in the balance sheet;
- the related impairment losses, loss on disposals, and depreciation charged to profit/loss in the statement of comprehensive income; and
- the related property, plant, and equipment valuation gains/losses and the impairment losses charged to other comprehensive income in the statement of comprehensive income.
6.23
Our audit of Christchurch City Council and Group was limited because we could not get enough audit evidence to support the "what did it cost" sections and the associated variance explanations for 2012/13 and related comparative information.
6.24
We also drew attention to the disclosure in the annual report regarding the Council becoming aware of deficiencies in its rates-setting resolutions since 2004/05. The Council has reset the rates for 2013/14 and is preparing a draft bill to correct deficiencies (that include the setting of payment dates and the charging of rates penalties) for 2004/05 to 2012/13.
6.25
We expressed disclaimers of opinion on the financial statements of Matata Recreation Reserve Board (for 2006/07, 2007/08, and 2008/09) because we could not get signed representation letters and statements of responsibility from the Board. The Board had limited controls over some revenue and inadequate supporting documents for payments. As a result, we could not get enough evidence to confirm the completeness of revenue or payments.
6.26
Because we did not offer an opinion on the financial statements for 2006/07 and 2007/08, we could not offer an opinion on the comparative information in the 2007/08 and 2008/09 financial statements.
6.27
We also drew attention to the disclosures in the Board's financial statements (for 2006/07, 2007/08, and 2008/09) that referred to the disestablishment and the transfer of operations, assets, and liabilities to the Department of Conservation on 24 August 2009. The decision of the Board not to adjust the financial statements was appropriate.
Adverse opinions
6.28
In 2013, we expressed adverse opinions on the financial or performance information of nine public entities.
6.29
Because they did not recognise their museum collection assets or the associated depreciation expense, which is a requirement of generally accepted accounting practice, we expressed adverse opinions for:
- Canterbury Museum Trust Board (for 2012/13);
- Otago Museum Trust Board (for 2012/13);
- Southland Museum and Art Gallery Trust Board Incorporated, a public entity associated with Gore District Council, Invercargill City Council, and Southland District Council (for 2012/13); and
- Pukaki ki Rotorua Charitable Trust (for 2010/11, 2011/12, and 2012/13).
6.30
We expressed an adverse opinion for Kaikoura Enhancement Trust (a trust controlled by Kaikoura District Council) for 2007/08 for not reporting against performance measures and targets in statements of service performance because it did not prepare a statement of intent.
6.31
We expressed adverse opinions for four public entities that had not reported against performance measures and targets in their statements of service performance because they did not prepare a statement of intent for the reporting year and failed to comply with the law for not preparing a statement of intent for the period following the reporting year. The adverse opinions were for:
- Mayoral Relief Fund Tasman/Nelson, a trust controlled by Tasman District Council (for 2011/12);
- Luggate Nominee Limited, a council-controlled organisation in the Dunedin City Council group (for 2008/09, 2009/10, 2010/11, 2011/12, and 2012/13);
- West Coast Rural Fire Authority (for 2004/05, 2005/06); and
- Mackenzie Tourism and Development Trust, a council-controlled organisation of Mackenzie District Council (for 2010/11 and 2011/12).41
Qualified opinions
6.32
During 2013, we expressed qualified opinions on the financial or service performance information of 23 public entities. We express a qualified opinion when there is a disagreement with the treatment or disclosure of an issue in the financial statements or when we cannot get enough audit evidence about a matter.
6.33
We expressed a qualified opinion of the comparative information in the financial statements for 2012/13 of:
- Tuam Limited, a subsidiary of Christchurch City Council − we issued a disclaimer of opinion about Tuam Limited's 30 June 2012 financial statements, except the cash flow statement and statement of service performance; and
- Tauranga City Venues Limited, a subsidiary of Tauranga City Council − we did not get enough evidence about revenue for the year ended 30 June 2012.
6.34
We expressed a qualified opinion for Sarjeant Gallery Trust (for 2009/10 and 2010/11) because our audit of the property, plant, and equipment was limited. The equity was overstated as a result of the Trust recognising the transfer of its property, plant, and equipment to Wanganui District Council on 1 July 2009. These assets should have been recognised in the year ended 30 June 2011, the year the resolution was made. Our audit on the comparative information in the 2010 financial statements was limited. We could not rely on the opening balances because the 30 June 2008 financial statements were not audited.
6.35
Because we could not get enough assurance about the completeness of revenue and/or expenditure, we expressed qualified opinions for the following public entities:
- Tauranga City Aquatics Limited, a subsidiary of Tauranga City Council whose financial statements were appropriately prepared on a disestablishment basis (for 2012/13);
- Tauranga City Investments Limited and Group, a subsidiary of Tauranga City Council (for 2012/13);
- The World Buskers Festival Trust, a trust controlled by Christchurch City Council (for 2012/13);
- Nelson Creek Recreation Reserve Board (for 2008/09 and 2009/10);
- Mataroa Hall Board (for 2012/13);
- Oakura Reserve Board (for 2009/10 and 2010/11);
- Ruakaka Central Domain Board (for 2011/12 and 2012/13);
- Ongarue Hall Society Incorporated (for 2009/10);
- Waikiekie Domain Board (for 2010/11);
- Whatitiri Domain Board (for 2009/10 and 2010/11);
- Awakaponga Public Hall Board (for 2010/11 and 2011/12);
- Millerton Hall Board (for 2010/11 and 2011/12);
- Taurikura Hall Board (for 2011/12);
- Ruapuke Cemetery (for 2010/11 and 2011/12);
- Blacks Cemetery, whose financial statements were appropriately prepared on a disestablishment basis (for 2009/10);
- Calcium Cemetery (for 2007/08, 2008/09, 2009/10, and 2010/11); and
- Matata Cemetery Trustees (for 2011/12).
6.36
We expressed a qualified opinion for North Canterbury Fish and Game Council for 2012/13 because we could not get enough assurance about the quantity of inventory or biological assets as at balance date.
37: For a plain-English explanation of the types of audit reports, see "The Kiwi guide to audit reports", at blog.oag.govt.nz.
38: Local authorities, most council-controlled organisations, airports, port companies, other local government miscellaneous entities, administering bodies and boards, and local authority sinking fund commissioners have a 30 June balance date. Energy companies and cemeteries have a 31 March balance date. Fish and Game Councils have a 31 August balance date, and other entities, including some council-controlled organisations and other local government miscellaneous entities, have a balance date in March, August, October, or December.
39: The figures for the number of audit reports may include audit reports that relate to more than one financial period; for example, for the year ended 30 June 2012 and 30 June 2013. In most instances, we issue an audit report for each financial year.
40: Kaikoura Community Charitable Trust was previously known as Kaikoura Community Facilities Trust. Its balance date changed from 31 March to 30 June in 2012.
41: This trust was disestablished in July 2012 and its 2012 financial statements were appropriately prepared on a disestablishment basis.