Auditor-General's overview

Local government: Results of the 2015/16 audits.

Tēnā koutou.

I am pleased to present the results of the 2015/16 local government audits. As this is published, local authorities are starting to prepare their 2018-28 long-term plans and infrastructure strategies.

When preparing these documents, local authorities need to think carefully about how they intend to strike the right balance between being cost-effective, as required by the Local Government Act 2002, and delivering services to their communities now and in the future.

Investing in infrastructure needs careful thought

Local authorities continue to report a low level of capital expenditure on renewals compared to depreciation expenditure. Depreciation represents each local authority's best estimate of the portion of assets that it has used up during the period. Renewal capital expenditure represents the extent to which the portion of the assets used has been reinstated.

Any significant shortfall in reinvestment, particularly for multiple years, can indicate that a local authority's assets are being run down. This can highlight whether local authorities are investing enough to maintain their existing infrastructure.

Furthermore, local authorities are carrying out substantially less capital work than budgeted. This indicates that local authorities might be underinvesting in their assets.

Each local authority's circumstances are unique. We encourage each local authority to consider whether it is underinvesting in its assets and, if so, the likely effect of that underinvestment on service levels.

I expect individual local authorities to have a comprehensive understanding of their critical assets and the cost of adequately maintaining them, and to periodically renew components reaching the end of their useful lives. Elected members need this information to make deliberate decisions about how to manage the assets they govern. Only then can they have meaningful conversations with their communities about how to fund the reinvestment in assets or the consequences of not doing so.

Auditors will look at forecasts of depreciation and renewals, along with funding strategies, of local authorities during the audit of the 2018-28 long-term plans.

Prioritising communication with communities and stakeholders

Most local authorities, their subsidiaries, and related organisations received an unmodified audit opinion on their 2015/16 financial statements. This means that most communities and stakeholders are receiving information that they can rely on. Only 4.9% of the annual audit reports issued in 2016 contained modified opinions, meaning that either we disagreed with how the organisation reported information or we could not get the supporting information we needed.

Seventy-six local authorities met the statutory deadline for adopting their annual report. However, the decrease in local authorities making their audited annual report and summary annual report available to the public in a timely manner and within the statutory deadline is of concern.

It is important that ratepayers and communities receive timely information. A delay undermines effective accountability, which in turn undermines communities' continued trust and confidence in their local authority. I expect all local authorities to set up strong and effective systems for reporting on their performance and to have effective project management processes to meet statutory deadlines for accountability documents.

Local authorities had to consider how they would respond to changes made in 2014 to the Local Government Act 2002 about consulting on their 2016/17 annual plans. These changes were part of measures to enable more efficient and focused consultation on long-term plans and annual plans. Local authorities are now required to consult on annual plans only if they propose significant changes from their long-term plans.

We commend those local authorities that looked for new ways to engage with their community and had conversations with their community about their 2016/17 plans before finalising them.

Getting it right

Elected members are ultimately responsible for "getting it right" when it comes to what the local authority does and how it does it. This means that elected members should ask appropriate questions and be satisfied that their local authority has appropriate policies and practices in place.

A local authority's power to set rates is essentially the power to tax people for the costs of the services the local authority provides. A recent High Court decision highlighted the importance of getting it right when setting rates. Although setting rates can be complex, it is concerning that some local authorities are not meeting best practice. Local authorities are responsible for ensuring that they comply with their legal and accountability obligations.

Other work in the local government sector that we have completed in the last year, such as examining the Canterbury rebuild and our review of service performance for Auckland Council, highlight some important lessons, including the need for good project monitoring and governance. During this work, we noted that getting the basics right is not achieved consistently.

Looking ahead

Although the focus of this report is on the 2015/16 audits, it outlines important messages about what I intend to monitor throughout my term. My staff and I look forward to working with local authorities in the years ahead.

Nāku noa, nā,

Signature MM

Martin Matthews
Controller and Auditor-General

4 April 2017

Photo acknowledgement: mychillybin © Lakeview Images