Part 6: The audit reports we issued

Matters arising from the 2015-25 local authority long-term plans.

In this Part, we provide an overview of the audit reports that we issued on the 2015-25 LTPs. Of the 78 audit reports we issued, 66 were standard audit reports and 12 were non-standard audit reports (see Appendix 2).46

We issued a modified audit opinion for Christchurch City Council's 2015-25 LTP. The remaining audit opinions that we issued were unmodified.

Twelve audit reports, including Christchurch City Council's, included an emphasis-of-matter paragraph. We emphasise a matter to indicate a significant uncertainty or other matter that we consider important enough to highlight to the reader.

Christchurch City Council

Christchurch City Council's 2015-25 LTP is the first it has prepared and had audited since 2009. Legislation enacted after the Canterbury earthquakes gave the Council an option not to prepare and adopt an LTP for 2012-22.

Christchurch City Council has had to deal with many issues as a result of the earthquakes. Many of these issues remain unresolved, providing challenges to the Council as it prepared its 2015-25 LTP.

The Council's LTP had to reflect the unique circumstances it faced, including:

  • The Council has incomplete knowledge about the condition of its assets. The earthquakes damaged many of the Council's assets. Although significant rebuilding work is being completed, the Council does not have a complete record of the damage caused, the rebuilding work completed to date, and the long-term effect of the earthquakes on the assets' remaining useful lives and service potential.
  • The capital expenditure programme that the Council proposed in its LTP is significantly bigger than what it has completed before.
  • The amount that the Council can expect to receive in insurance revenue remains unknown.
  • The Council is uncertain how the rebuilding of the city, including the Council's assets, will be funded.

For each uncertainty, Christchurch City Council was required to determine its best estimate based on assumptions that it had made.

Audit report on the consultation document

We issued an unmodified audit opinion on the Council's consultation document and, to draw attention to disclosures, included an emphasis-of-matter paragraph. Those disclosures outlined the uncertainties about the assumptions in the underlying information. We drew attention to them because the assumptions were significant.

We concluded that the consultation document provided a fair representation of the matters proposed for inclusion in the LTP.

The consultation document was presented in a way that readers could easily understand because it focused on the financial shortfall arising from the estimated cost of rebuilding and the options to address the shortfall. The Council, in its consultation document, was considering and consulting on the question: "How is the Council going to fund the next 10 years?" This is a broad question, but we concluded that it was reasonable in the circumstances. Because of the unique circumstances that the Council faced, it sought feedback from its community at a higher level than would be usual for local authorities dealing in a business-as usual situation or proposing only incremental changes.

We also had to consider the quality of the information and assumptions underlying the information in the consultation document – whether the forecast financial information was reasonable and consisted of "best estimates/use of best information". The Council was clearly disclosing the uncertainties in the underlying information and was using the best information available to it when the consultation document was issued. It was also clear to the community that the uncertainties are such that the LTP might need to change in the future as uncertainties are resolved.

Audit report on the 2015-25 LTP

We concluded that the LTP incorporated the Council's best estimates and assumptions about the estimated costs to repair and rebuild the Council's assets.

However, because of the damage caused by the earthquakes, and because of the uncertainties about how the earthquakes affected the Council's property, plant, and equipment, we issued a modified opinion on the information and assumptions underlying the forecast information in the LTP.

Property, plant, and equipment balances are a significant component of the forecast financial statements in the Council's LTP.

The additional details in an LTP, which are not in a consultation document, include:

  • forecast financial statements for each of the financial years covered by the LTP;
  • the sources of funding to be used by the local authority, the amount of funds expected to be produced from each source, and how the funds are applied; and
  • the content of the local authority's funding impact statement, which informs the community about the rates for the coming year.

This information is required to give effect to the purpose of an LTP.

As with the consultation document, we included an emphasis-of-matter paragraph. The paragraph drew attention to the disclosures in the LTP about the uncertainties about the assumptions in the underlying information relating to assets. Again, it was because those assumptions were significant.

These opinions are consistent with our annual audit opinions of the financial statements since the earthquakes.

The Council's own disclosures outline that it will continue to refine its estimates of the projected capital programme and the cost to repair earthquake-related asset damage, as well as the timing of those repairs and the associated sources. This may result in the Council amending its LTP in line with the changing circumstances, affecting the timing and the way in which Christchurch is rebuilt.

Effect of floods close to when long-term plans were adopted

Shortly before the statutory deadline for adopting the LTPs, much of the Manawatu-Wanganui and Taranaki regions experienced flooding. Manawatu-Wanganui Regional Council, Rangitikei District Council, South Taranaki District Council, and Wanganui District Council all suffered damage to their infrastructure assets.

The local authorities were not in a position to fully assess the nature and extent of the damage before adopting their LTPs. The local authorities used the best information they had about the extent of the damage at the time. However, they recognised that their analysis was limited and they disclosed this in their LTPs.

Although the local authorities adequately disclosed that they had more work to do to assess the damage and determine the implications for the community, we included an emphasis-of-matter paragraph in our audit reports to draw the readers' attention to the disclosures.

Potentially, each affected local authority might need to amend its LTP in the near future if the costs to remediate and repair the damage caused by the flooding are significant. We will continue to work with the local authorities as each learns the full extent of the damage sustained.

Sometimes, an emphasis-of-matter paragraph in an audit report is interpreted as a "black mark" against the local authority. However, an emphasis-of-matter paragraph draws readers' attention to something in the document. In this instance, we consider that the local authorities took a pragmatic approach to dealing with the uncertainties, which enabled each local authority to meet its accountability requirements within the statutory time frames.

Long-term plans adopted late

The LTP is an important tool for the community to hold its local authority to account. Its primary purpose is to outline the financial and service delivery circumstances that the local authority faces and the proposed response to those circumstances.

Section 93(3) of the Act requires a local authority to adopt an LTP before the start of the first year to which it relates. That means that local authorities needed to have adopted their audited 2015-25 LTPs by 1 July 2015.

Three local authorities – Mackenzie District Council, Rotorua District Council, and Wairoa District Council – did not meet this statutory deadline.

We consider the delay in providing those three communities with an LTP to be unacceptable. Although, in August 2014, changes were made to the process for consulting on an LTP, the preparation of an LTP has remained largely unchanged and has been carried out four times from 2006. Local authorities should be able to plan effectively to meet the statutory deadline.

We consider it appropriate to refer to this statutory breach in our audit reports for the LTPs adopted after the statutory deadline.

We notified the Department of Internal Affairs of the breach of section 93 of the Act. It is a matter for the Minister of Local Government to determine what, if any, further action is required.

46: For a plain English explanation of the types of audit reports, see "The Kiwi guide to audit reports", at