Part 6: Accountability and monitoring – the formal requirements

Governance and accountability of council-controlled organisations.

6.1
In this Part, we discuss the primary requirements for:

Statutory requirements for accountability and monitoring

The CCO

6.2
The Act requires a CCO to prepare and publish:

  • an annual statement of intent, agreed to by the parent local authority (see Part 7); and
  • an annual report, which must include a comparison of its actual and intended performance (as set out in its statement of intent), and audited financial statements.33

6.3
A CCO must produce a half-yearly report for shareholders on the entity's operations during the half year, including the information required by its statement of intent.34 The form and content of the half-year reports will differ according to those requirements. The report may contain financial information, but it does not have to be audited.

The local authority

6.4
The Act requires a local authority to:

  • consult its community before setting up a CCO;35
  • include its significant objectives and policies for ownership and control of CCOs in its long-term plan and signal any significant changes in its annual plans;36 and
  • include in its annual report a comparison of the CCO's actual performance with the intended performance set out in the local authority's long-term plan (or annual plan).37

6.5
A local authority may include forecast financial statements for its CCOs in its long-term plans and annual plans.38

6.6
The focus of local authority reporting is on how the local authority's significant policies and objectives for owning and controlling CCOs have been met and on whether the CCO has delivered on planned achievements and results as set out in the local authority's long-term or annual plans.39 The local authority's annual report must include enough information to enable an informed assessment of the operations of the CCO, including a comparison with the CCO's stated objectives in its statement of intent.

6.7
The Act requires a local authority to set out its objectives and strategies for having CCOs and how it will measure the CCOs' performance, not just the objectives and performance measures for the CCOs.

Reporting on specified activities

6.8
From the 2015 long-term plans, local authorities and CCOs that provide five specified groups of activities must use a standard set of performance measures when reporting to their communities on the delivery of those activities. The groups of activities are:

  • water supply;
  • sewerage and the treatment and disposal of sewage;
  • stormwater drainage;
  • flood protection and control works; and
  • roads and footpaths.

6.9
If a CCO provides these activities, it must include additional information in its statement of intent and report against that information in its annual report. The additional information is a statement of intended levels of service provision that specifies:

  • the mandatory performance measures for the group of activity;
  • if mandatory performance measures have not been specified, the performance measures that the CCO considers will enable the public to assess the level of service for major aspects of groups of activities; and
  • the CCO's target for each performance measure.

Monitoring

6.10
A local authority must monitor the performance of its CCOs to evaluate their contribution to the achievement of:

  • the local authority's objectives for the organisation;
  • the desired results set out in the CCO's statement of intent; and
  • the overall aims of the local authority.40

6.11
Monitoring includes the local authority agreeing to the CCO's statement of intent and putting systems in place to evaluate whether the CCO has achieved the local authority's objectives for it and the CCO's contribution to the local authority's overall aims and outcomes. Carried out well, monitoring gives the local authority assurance that the CCO is meeting the objectives that the local authority has set. Monitoring provides the basis for a constructive relationship between local authority and CCO.

6.12
We further discuss monitoring, both formal and informal, in Part 7.

Public access to information

6.13
Parts 1 to 6 of the Local Government Official Information and Meetings Act 1987 apply to CCOs as if they were local authorities. This means that the provisions of that Act about access to official information apply to CCOs. However, the provisions of that Act about meetings do not apply. The Ombudsmen Act 1975 also applies to CCOs – meaning that an Ombudsman can investigate and report on any matter of administration involving a CCO.

Review of purpose

6.14
The requirement that a local authority state its own objectives in owning CCOs and that it agree to the CCO's statement of intent means that local authorities are likely to review these matters regularly.

6.15
Generally, the local authorities we spoke to were clear about their overall strategy and objectives for their CCOs. Most had stated this well in their accountability documents, although one had focused on the role and objectives of its CCOs rather than what the Council sought from them.

6.16
The local authorities that have CCOs for investment purposes were particularly clear on purpose – for example, Dunedin City Council, which requires its CCOs to "maximise dividends".41 The process that Tauranga City Council used to review its CCOs and agree on their purpose is set out in Example 5 in Appendix 1.

Exempting CCOs from accountability requirements

6.17
The Act provides for some entities to be exempted from being a CCO. The consequence of exemption is that the Act no longer applies to the entity for the period of the exemption. The practical effect is that the entity does not have to meet the reporting requirements for CCOs set out in the Act. However, the parent local authority should still monitor the entity's performance.

6.18
Under section 7, there are two means by whi ch a CCO may be exempted:

  • The Governor-General may exempt an entity on a recommendation from the Minister of Local Government. This provision is aimed at entities that are already subject to appropriate accountability under their own Acts. Therefore, the Minister must be satisfied that the entity's accountability under its own Act is of a similar nature and effect to that required of a CCO under the Act.42
  • A local authority can exempt "small" organisations. This provision addresses concerns about compliance costs for small non-profit trusts. The Act does not define "small", but local authorities cannot exempt CCTOs. In exempting non-profit entities, local authorities must have regard to:
    • the nature and scope of the activities provided by the entity; and
    • the costs and benefits, if an exemption is granted, to the local authority, the entity, and the community.

6.19
If a local authority exempts a CCO, it may revoke the exemption at any time. A local authority must review an exemption within three years after it is granted and then at intervals of no more than three years. In most instances, although the exempt entity is no longer required to prepare financial statements under the Act, it is required to do so under its rules or trust deed.43

6.20
Most exempt CCOs are trusts that operate community facilities in the arts, cultural heritage, recreation, or social services areas. These activities are often done by small non-profit community entities such as trusts. If those entities are small, the costs of accountability under the Act may outweigh the benefits and they are likely to be appropriate candidates for exemption.

6.21
There are about 30 CCOs exempted by local authorities that are still subject to audit by the Auditor-General. They have annual revenues that range from under $5,000 to $13.3 million and assets that range from under $7,000 to almost $19 million. They include some larger entities associated with the Auckland Council that are "small" in the context of the Auckland Council.

33: Sections 67 and 68 of the Act.

34: Section 66 of the Act.

35: Section 56 of the Act.

36: Section 95 and Schedule 10, clause 7, of the Act.

37: Schedule 10, clause 28(c), of the Act.

38: Schedule 10, clauses 12 and 18, of the Act.

39: Schedule 10, clauses 7 and 28, of the Act.

40: Section 65 of the Act.

41: See Example 3 in Appendix 1.

42: The Otago Museum Trust Board, Museum of Transport and Technology Board, and Canterbury Museum Trust Board have been exempted by the Governor-General under section 7(1).

43: The Auditor-General continues to audit most of these exempt entities under their trust deeds or rules, despite their being exempted from the Act.