Appendix 2: Non-standard audit reports
Matters arising from the 2015-25 local authority long-term plans.
The table below sets out summarised extracts from the nonstandard audit reports that we issued for the 2015-25 LTPs.
| Local authority | Summarised extract from the audit report |
|---|---|
| Modified audit opinion with an emphasis-of-matter paragraph | |
| Christchurch City Council | Every three years, a local authority is required to prepare a long-term plan. Due to the significant damage caused by the series of earthquakes from 2010 and resulting uncertainties about the extent of damage and the estimated cost of rebuilding, the Council faces unique circumstances in which to prepare its plan. Opinion Recognising the unique circumstances facing the Council, except for property, plant and equipment assets (the assets), where the Council:
Assumptions and underlying information about assets, on which the plan is based Without further modifying my opinion, I draw your attention to the assumptions and underlying information relating to assets, on which the plan is based. The Council's plan has been prepared using the best information that it currently has available, and is based on a number of significant assumptions. In the plan, the Council recognises that there remains a high level of uncertainty about the estimated costs to repair and rebuild the Council's assets. The Council has explained in its financial strategy that the plan depends on several interrelated factors, including:
The Council has explained the cumulative uncertainties that it faces, which might result in it amending this plan in line with changing circumstances, affecting the timing and the way in which Christchurch City is rebuilt. In drawing your attention to these issues, I am not commenting on the merits of the policy content that they reflect. I consider the disclosures in the plan to be adequate. |
| Unmodified audit opinion with an emphasis-of-matter paragraph | |
| Chatham Islands Council | Uncertainty over the level of forecast funding for roading infrastructure Without modifying our opinion, we draw your attention to the following matter. As set out on pages 8 and 9 of the plan, the Council significantly relies on a range of funding agreements with government agencies to continue to operate and provide services to the community. These arrangements are negotiated periodically. A planned reduction in funding of roading infrastructure has not been quantified but the potential effect could be significant. The Council is in discussions with the New Zealand Transport Agency (NZTA) to address the shortfall. The consultation document is prepared on the basis that sufficient funding will be sourced from NZTA or another party to maintain funding at the current level. We draw your attention to these issues because of the significant effect that funding changes could have on rates, debt, investments, or levels of service during the 10-year period. We consider the Council's disclosures about this matter to be adequate. |
| Dunedin City Council | Uncertainty about achieving the total savings in the long-term plan Without modifying our opinion, we draw your attention to the fact that the Council needs to find about $101 million of savings and efficiencies during the 10-year period of the long-term plan to meet its aim of keeping rate increases within 3% and to complete its planned renewal programme. On pages 3 to 7 of Section 1 of the long-term plan, the Council discusses the major issues it faces over the life of the plan and how it plans to address them. Within this discussion, the Council outlines that the level of rates it has forecast in the long-term plan exceed its desired 3% limit on rates increases, in seven of the 10 years of the plan. There is a gap of $74 million of savings required from 2016/17 to enable forecast rates to be reduced to come within the Council's desired 3% limit. This is set out in Table 1 on page 4 of Section 1 of the long-term plan. The Council also outlines the significant level of renewals required in the next 30 years and the need to catch up on an estimated $60 million backlog of renewals in the water and waste area. This includes assets that have exceeded their useful lives and are/or are not capable of delivering suitable service levels. The Council has forecast extra spending in the next 30 years, but there is a still a gap ($88 million) between the Council's proposed funding levels ($612 million) and the theoretical cost of the renewals needed ($700 million). The Council notes that it expects that, through a combination of refining cost assumptions and delivering projects for less money, it can close the 16% gap between theoretical and actual cost to allow the backlog of renewals to be caught up by 2039/40. This gap totals $27 million during the 10 years of the long-term plan. The Council is committed to consulting the community if the 3% rates target cannot be met without reducing services or where it considers "exceptional circumstances" require a rate greater than 3%. We draw your attention to these matters because, if the Council is not able to realise such savings, it might adversely affect rates, levels of service, and debt projections. In drawing your attention to these uncertainties, we are not commenting on the merits of the content that they reflect. We consider the disclosures in the long-term plan to be adequate. |
| Kaipara District Council | Judicial Review Proceedings Without modifying our opinion, we draw your attention to the significant forecasting assumption as described in the Significant Forecasting Assumptions, see pages 92 and 93 of Part Two of the plan. The Council has assumed the Mangawhai Ratepayers and Residents Association's appeal against the High Court decision will not succeed. However, a successful appeal could result in a significant financial effect on the Council's ability to use rates revenue, both past and future, to service the debt raised to fund the Mangawhai Community Wastewater Scheme. This could cause the Council to default on its debt servicing and repayment obligations, which in turn could enable the Trustee, as security holder for the creditors, to collect revenue from rates the Council has set for other purposes and/or appoint a receiver who would have powers to set rates to recover the secured amount. |
| Mackenzie District Council | Breach of the Local Government Act 2002 Without modifying our opinion, we draw your attention to the fact that, as disclosed on page 3 of the plan, the Council failed to adopt the plan before the start of the first year to which it relates. This is a breach of section 93(3) of the Local Government Act 2002. |
| Manawatu-Wanganui Regional Council | Uncertainties due to the potential impact of recent rainfall Without modifying our opinion, we draw your attention to the disclosures on page 8, about the potential effect of the recent rainfall. The Council's flood protection and drainage infrastructure have sustained damage. The Council has been unable to complete a detailed assessment of the remedial work needed. As a result, the Council is unable to determine the full cost of repairing the damage before adopting its plan. |
| Opotiki District Council | Uncertainties over the funding and timing of the Opotiki Harbour Transformation project Without modifying our opinion, we draw your attention to the proposed funding of the Council's significant investment in the Opotiki Harbour Transformation project (the project) as set out on page 200 of the plan. There is significant uncertainty about whether the amount of external funding needed for the project will be made available and, if funding is made available, when the project will proceed. If external funding is not available, the Council has stated that the project will not proceed because the Council does not have the financial resources to carry out the project on its own. Should the project not proceed, the expected economic and social benefits to the Council and community as reported in the plan is unlikely to eventuate, as set out in the assumptions on pages 193 to 201. |
| Rangitikei District Council | Uncertainties due to the potential impact of recent rainfall Without modifying our opinion, we draw your attention to the disclosures on page 3, about the potential effect of the recent rainfall. The Council's roading assets have sustained significant damage. However, the Council has been unable to determine the cost of repairing the damage before adopting its plan. Once this information is known, the Council might need to amend its plan. |
| Rotorua District Council | Uncertainties over the limit being imposed on all capital expenditure As set out on page 8 and 9 of the plan, the Council has decided to set a funding envelope for the life of this plan that funds only 85% of the planned capital expenditure programme that the Council set out in its consultation document. In order the achieve this reduced level of capital spending over the period of the plan without affecting levels of service, the Council needs to find savings and efficiencies totalling $56.4 million. On page 84 of the plan, the Council broadly outlines how it plans to reduce its capital expenditure, but at this stage has not identified any specific proposals to achieve the total level of savings required. To the extent that the Council is not able to achieve these savings, the Council will need to reduce its capital expenditure programme or borrow to fund the shortfall with the potential to affect the future rates requirement. This risk is highlighted by the Council on pages 84 and 238 of the plan, which sets out the financial strategy and significant assumptions. Breach of the Local Government Act 2002 As disclosed on page 245 of the plan, the Council failed to adopt the plan before the start of the first year to which it relates. This is abreach of section 93(3) of the Local Government Act 2002. |
| South Taranaki District Council | Uncertainties due to the potential impact of recent rainfall Without modifying our opinion, we draw your attention to the disclosures on page 5, about the potential impact of the recent rainfall. The Council's roading assets have sustained significant damage. The Council has been unable to determine the full cost of repairing the damage before adopting its plan. |
| Wairoa District Council | Breach of the Local Government Act 2002 Without modifying our opinion, we draw your attention to the fact that, as disclosed on page 1 of the plan, the Council failed to adopt the plan before the start of the first year to which it relates. This is a breach of section 93(3) of the Local Government Act 2002. |
| Wanganui District Council | Uncertainties over the proposed wastewater treatment plant Without modifying our opinion, we draw your attention to the disclosures on pages 33 to 37 in Volume 1 about uncertainties over the specification, cost, timing, and affordability of the proposed wastewater treatment plant. While the costs for the wastewater treatment plant, as outlined in this plan, are the current best estimate of the proposed design, the Council is concerned that the design for the proposed wastewater treatment plant is unaffordable. As a result, the Council delayed construction of the wastewater treatment plant until 2017/18 while the design is reworked so that the treatment solution is more affordable for the community and for trade waste users. Until the design of the wastewater treatment plant is confirmed and the wastewater treatment plant is built, the future funding impact on the community and trade waste users will remain uncertain. In the meantime, an emergency short term resource consent to discharge effluent will be required. Once the design of the wastewater treatment plant has been confirmed, the Council might need to amend its plan. Uncertainties due to the potential impact of recent rainfall Without modifying our opinion, we draw your attention to the disclosures on page 3 in Volume 1 about the potential impact of the recent rainfall. The Council's roading infrastructure and its urban infrastructure networks, which include stormwater pipes, pumping stations, and parks, have all sustained damage. The Council has been unable to complete a detailed assessment of the remedial work needed. As a result, the Council is unable to determine the extent of the damage and the funding that will be required to repair the damage before adopting its plan. Once the extent of the damage is known, the Council might need to amend its plan. |