Part 7: Our current work in the local government sector

Local government: Results of the 2012/13 audits.

In this Part, we describe our current work in the local government sector. It includes:

Governance of council-controlled organisations

The Auditor-General has an ongoing interest in the governance and accountability of council-controlled organisations and other subsidiaries of local authorities. The number of such public entities has increased steadily, but little research or analysis is available about either the reasons for this or how effective the public entities are. In some instances, high-profile governance matters have increased the interest in wider local government governance matters.

We have begun to review governance and accountability arrangements between local authorities and council-controlled organisations. Our review will contribute to our Governance and accountability theme in 2014/15.

We expect to report later this year on aspects of how well the statutory framework is working, including:

  • accountability – how accountability works in practice for council-controlled organisations and other subsidiaries of local authorities;
  • alignment of strategic direction – how council-controlled organisations and other subsidiaries fit within the local authority's overall strategy, and their awareness of that strategy and their role; and
  • performance monitoring – including the value of the statement of intent framework and reporting, and oversight arrangements (such as council committees, holding companies, and Letters of Expectation).

We have already carried out interviews with people in some local authorities and council-controlled organisations. Our report will include any common themes, highlight what is working well, and identify any problems with the accountability and governance framework.

Asset and service-level management audits

Local authorities have been reporting on major infrastructure assets, an essential element of local government services, since the early 1990s. That reporting has coincided with the development of the discipline of asset management planning and cycle of substantial reinvestment in existing assets.

We have encouraged the good management of public assets since the introduction of accrual accounting in the late 1980s. We see that best results are achieved when asset management is integrated throughout an organisation. An integrated management approach involves robust information and systems that managers, engineers, valuers, planners, corporate finance staff, and the governing body use co-operatively to ensure that the right people contribute the right information at the right time.

In June 2013, we published Managing public assets. That report included a stocktake of how physical assets that deliver services to the public are managed. It summarised the high-level information that we received from more than 340 public entities about how they managed their physical assets.

Most public entities understood the importance of planning for assets, with plans in place for about 75% of assets. This indicated to us that most public assets were in a suitable condition to provide the services intended.

Our next piece of related work will be an audit of local government asset and service-level management. This audit will analyse and provide an overview of the life-cycle maturity of local government assets, where and when major investments are required, and whether asset management practice is keeping pace with the information needs of local authorities to manage service provision. Our audit seeks to answer the following questions:

  • What is the state of asset management practice?
  • Where is local government infrastructure in the asset management investment cycle?
  • What is the effect of the current "deferrals" approach – is it likely to have long-term implications?

Managing assets using a life-cycle approach is important, because many assets are likely to have similar useful lives and maintenance and upgrade profiles. Assets must be maintained if they are to continue delivering the services intended from them. Deferring asset maintenance for a long time can result in more breakdowns and disruption of services, substandard services, and, in the end, failure of services.

The Local Government Act 2002 Amendment Bill (No 3) plans to introduce new requirements for infrastructure strategies and asset management planning:

The Bill provides for a new infrastructure strategy to be incorporated into long-term plans. The purpose of this strategy is to identify significant infrastructure issues, options, and implications for the council over a 30-year period. It will cover, as a minimum, those of the five core infrastructure categories provided by the council (water supplies, sewage treatment and disposal, storm water drainage, flood protection works, and roads and footpaths).42

The infrastructure strategy (for at least a 30-year period) is to be incorporated into local authorities' 2015-25 long-term plans. In principle, we support the inclusion of the proposed infrastructure strategy within long-term plans because it provides a more complete picture of how local authorities intend to manage their high-value long-life assets.

We plan to publish the results of our audit of local government asset and service-level management later in 2014.

Watercare Services Limited

The legislation that enabled the creation of Auckland Council requires the Auditor-General to review and report on the Council's service performance. The first such review we chose to do covers the service performance of Watercare Services Limited, which is the water and wastewater service provider in Auckland. We are publishing our report on that review at the same time as this report.

Our review focuses on an evaluation of the effectiveness and efficiency of the "customer interface", particularly focusing on the application of pricing policy, the billing system processes, and the complaints management system. Specifically, we have considered:

  • tariffs;
  • the operation of the contact centre;
  • the introduction of monthly billing;
  • meter reading; and
  • customer debt management practices, including the operation of the Water Utility Consumer Assistance Trust.

The next review we choose is likely to be of Auckland Council's building consent service performance.

42: Local Government Act 2002 Amendment Bill (No 3), Explanatory note.

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