Part 7: Our work in local government

Local government: Results of the 2016/17 audits.

In this Part, we discuss discretionary work about local government that we did during and since 2016/17.

For local government, most of our work involves annual financial audits and audits of long-term plans.

The Auditor-General also has the power to conduct discretionary work in the form of performance audits (under section 16 of the Public Audit Act 2001) and inquiries into aspects of local government performance (under section 18 of the Public Audit Act 2001).

Since 2012/13, we have had a multi-year themed work programme. By selecting a theme in advance, we seek to draw attention to important public management and accountability matters and to increase the effectiveness of our work. In 2016/17, the theme was information. In 2017/18, the theme is water management.

Performance audit work

Auckland Council: Working to provide customer-centred services online

Section 104 of the Local Government (Auckland Council) Act 2009 requires the Auditor-General to review the service performance of Auckland Council and its council-controlled organisations.

In 2015, Auckland Council began preparing an organisational strategy for 2017-19 to improve the way it delivers its services to Aucklanders. Auckland Council has a programme of work called the Digital Transformation Programme (the Programme).44 The goal of the Programme is to improve customers' experience using online services and increase Auckland Council's efficiency in providing services.

As part of our regular reviews of Auckland Council's service performance, we reviewed the Programme and two projects in it – Identity Management and Smart Forms. We assessed how well Auckland Council was managing the Programme.

The Programme is well aligned to Auckland Council's organisational strategy, and there are indications that Aucklanders and Auckland Council are receiving benefits from the online services programme. However, there were inaccuracies in the reporting to governance groups, and the reporting could be more useful by tracking and reporting on all of the relevant outcomes sought.

We recommended that Auckland Council improve its governance and accountability arrangements, and its reporting on projects and benefits.

Although these findings are specific to Auckland Council, they provide useful insights for all local authorities that are delivering significant programmes of work. In particular, governance groups need accurate and timely information to maintain effective oversight of programmes of work and to make good decisions about how the programmes of work are implemented.45

Information theme – understand your critical assets

In 2016/17, our work theme was information. As part of this, we examined aspects of how well the public sector was managing and making use of information it collected or generated for the effective and efficient delivery of public services.

Our work included looking at how five local authorities approached identifying and gathering the right information on their assets.46 We published our report Getting the right information to effectively manage public assets – Lessons from local authorities in December 2017.

The five local authorities understood the importance of having high-quality asset information, including a sound understanding of the condition of those assets, in providing more certainty when planning for the maintenance and replacements of their assets. However, these local authorities need to improve how they identify and prioritise gathering information about their critical assets.

In our view, all local authorities need to prioritise identifying their critical assets and understanding their age and condition. Having relevant and reliable information about critical assets supports elected councillors in making deliberate and well-informed decisions about how best to manage the assets they govern.

For many local authorities, funding is becoming more constrained. Having high-quality asset information underpins an effective long-term planning process. It supports local authorities to have meaningful discussions with their communities about choices and decisions affecting how services will be delivered.

Our water management work

Our work theme for 2017/18 is water management. This work includes several audits that focus on drinking water, stormwater, freshwater, and the marine environment – all of which involve local authorities to varying degrees.

We published a report in October 2017 that sets out why the Auditor-General has an interest in water management, the themes that we will explore, and an overview of the audits we are carrying out.47 At the end of our work programme, we will bring together our findings in a report that reflects on what we have heard about water management.

Our water management work will look at the role of information, innovation and good practice, balancing competing interests and priorities, making investment decisions, how organisations work together and with others, working with iwi, and a consideration of the capability and capacity of public organisations to address water management challenges.

Inquiry requests and correspondence

We regularly get requests from members of Parliament, councillors, and the public, including ratepayers, to inquire into aspects of local government performance. These requests are generally about how local authorities use resources and include financial, governance, and management matters.

These inquiry requests and other correspondence can be a useful source of information for us. They make us aware of people's concerns and can help us to plan our work. We consider these requests when preparing our annual work plan and annual financial audits.

However, we are not a complaints-resolution organisation, and we have limited resources for inquiry work. We are not able to inquire into every local government concern raised with us. Where possible, we encourage people to raise their complaints with the appropriate organisations in the first instance. This includes encouraging councillors who complain to us about their councils to raise their concerns with the chief executive or at the council table.

In 2016/17, about 40% of inquiry requests were about local government issues. In many instances, we were able to obtain the appropriate information from the organisations concerned without having to do a significant inquiry, or we gave the information to our appointed auditor of the local authority for consideration and to take any appropriate action during the annual financial audit or audit of the long-term plan. For some issues, we carried out a more substantive inquiry.

The types of local government issues raised with us included the behaviour and decisions of local government staff and elected members, and various aspects of financial management, including funding decisions. We also considered issues with the governance of several local authorities that we are continuing to monitor.

Auckland Council's Westgate/Massey North town centre project inquiry

In 2016/17, we completed an inquiry into Auckland Council's management of a project to develop a new town centre in Massey North. Development of that town centre has taken 16 years to date and is factually and contractually complex. We outline aspects of the history of the project in our report.48

Overall, we found that it was too early to determine whether the vision for the town centre would be achieved and the ultimate cost to the ratepayers to achieve that vision.

Several people had raised concerns with us about the establishment and management of this new town centre. They questioned whether the public and private costs and benefits of the project had been appropriately shared between Auckland Council and a private developer.

Although many of the findings of our inquiry were specific to Auckland Council and the project, a couple of findings apply to all local authorities. These relate to the transparency of actions and demonstrating that good decisions have been made:

It is important that local authorities strike the right balance between balancing commercial sensitivity, maintaining legal privilege as appropriate and being open with ratepayers and elected representatives to provide transparency about the agreements they enter into and to demonstrate that they are getting value for money. Such openness allows public discussion and debate, and is essential to supporting public sector accountability.
However, this exercise has highlighted once again the importance not just of making good decisions but also of being able to show that good decisions have been made. This is especially so in times of change (such as with the amalgamation of multiple local authorities into a super city).

Local authorities should be as transparent as possible about their actions and decisions, and the public should both expect and demand this.

Other substantive local government matters we considered

In this section, we discuss our responses to two people who wrote to us in 2016/17. They raised concerns about their respective local authorities.

The issues that they raised, along with the responses we provided, are useful reminders for all local authorities to think about how they involve their communities in their decision-making processes. We also note some of our observations about queries and requests that we receive on procurement-related decisions and work that we are planning to do for our procurement theme in 2018/19.

Proposed wastewater scheme for Glenorchy – local authority long-term plan decision-making

A Queenstown resident raised concerns about Queenstown Lakes District Council's consultation document for its 2015-25 long-term plan and our audit report on the consultation document.

The resident considered that the consultation document did not meet the requirements of the Local Government Act 2002 because it did not include a proposed wastewater scheme for Glenorchy as a significant issue to be consulted on. The consultation document did refer to a new wastewater scheme for Glenorchy, including indicative funding, under a section entitled "Our Core Business". We concluded that the consultation document was fit for purpose.

Queenstown Lakes District Council told us that it included five significant proposals for community consultation (excluding the proposed Glenorchy wastewater scheme) in the consultation document for its 2015-25 long-term plan. In the context of its significance and engagement policy, it had assessed these proposals as its significant consultation issues given their total value and/or the proportion of ratepayers affected. In considering the consultation issues for the document, Queenstown Lakes District Council also had to weigh up the degree to which the views of the community were already known.

Queenstown Lakes District Council had been considering options for dealing with wastewater in Glenorchy since 1994 and has budgeted for costs associated with a wastewater scheme for Glenorchy in its long-term plans since 2006. This process included consulting with people in Glenorchy about options.

We provided the resident with the explanation in the following example, which describes local authority decision-making for long-term planning and the auditor's role in this process. This is a useful reminder for all local authorities to ensure that their communities understand the purpose of long-term planning, how local authorities determine what is to be included in their long-term plan consultation documents, and the role of the auditor. It demonstrates that local authorities need to take their communities through the process when an issue or proposal that may affect them is considered, options analysed, and decisions made.

Our response about local authority decision-making for long-term planning and the auditor's role in the process

Council decision-making is an ongoing process, not one that occurs only every three years in conjunction with the long-term plan. That said, every three years, the long-term plan needs to set out the proposed activities and spending by the council for a 10-year period. It is important to note that a planning document such as a long-term plan is not a binding document and can be amended for significant changes. Annual plans produced in the period of each long-term plan explain any variations from the long-term plan.

The nature of a plan is that things change, but a plan should reflect and bring together existing and proposed activities and decisions for the 10-year period. It should also include the likely costs of those matters based on the best available information at that time. Long-term plans must also reflect the underlying documents and information, such as the council's financial and infrastructure strategies.

Part of the long-term planning process involves council staff compiling information about possible spending on projects in the period of the plan, whether final decisions have been made on those projects or not. Again, this is because the document is a plan and needs to include expenditure that will or might occur.

In 2014, the Local Government Act 2002 (the Act) was amended to streamline the planning and decision-making process and to enhance community engagement. The 2015-25 long-term plans were the first for which local authorities were required to prepare a concise consultation document for engagement with their communities, rather than a full draft of the long-term plan and a summary of the draft plan. This was so councils and their communities could engage on the key consultation issues and was intended to make the consultation process more focused and effective.

In terms of content, the Act is clear that it is for councils to determine the content of their consultation documents, on reasonable grounds, and having regard to their statutory purpose.

The Office's audit mandate also changed. Previously, we were required to determine whether a local authority had complied with the Act in preparing its plan. With the change to consultation documents, our mandate changed to a requirement to report on whether the consultation document is fit for purpose. This is not a matter of determining legal compliance, but a high-level judgement. As previously, we are also required to report on the quality of the underlying information and assumptions. Our appointed auditors make these judgements on behalf of the Auditor-General.

Southland Outdoor Stadium – Invercargill City Council

In 2016/17, an Invercargill resident asked us to inquire into arrangements that Invercargill City Council made in mid-2015 to take ownership of the Southland Outdoor Stadium (the Stadium).

In 2014, Invercargill City Council considered options for securing the future of the Stadium. This followed discussions with various parties about how the debts of the Stadium's owner, the Southland Outdoor Stadium Trust, could be paid.

Invercargill City Council consulted on three options in February 2015 and then decided at its meeting that month to make a donation to the Southland Outdoor Stadium Trust and take ownership of the Stadium on certain conditions.

The resident raised a particular concern about whether Invercargill City Council knowingly authorised a variation from the conditions in its February 2015 resolution before entering into the arrangement to take ownership of the Stadium.

We noted differences between the February 2015 consultation document, Invercargill City Council's resolution, and the final arrangements entered into. The differences involved the amount of the debt, how it would be repaid, and the time over which it would be repaid.

In our view:

  • Any change to a council resolution should be transparent because resolutions enable local authorities to take particular actions and to spend money.
  • Officials need to think about the right time to present the detail of proposals to others for decisions. There may be instances when officials are dealing with complex issues and want to test approaches before a final decision is made. It can be more effective to reach an agreement in principle and for officials to be delegated the responsibility to negotiate the detail.

Procurement – decisions and consultation

We receive many queries and complaints about procurement matters. These include procurement matters that local authorities are consulting on in their annual or long-term plans, have consulted on previously, or have chosen not to consult on. Sometimes, these payment or procurement decisions are to support facilities or activities of trusts or other entities in local communities but are outside our audit mandate.

We often receive queries about decision-making and practices for buying or disposing of local authority assets and facilities. Queries about the choices local authorities make are best directed to the local authorities for a response. It is not our role to question policy decisions. However, we often do further work on the questions or concerns that might give rise to more formal inquiries, within our mandate, and to focus our audits of annual and long-term plans.

Significant procurement proposals are often included in proposed long-term plans and amendments to long-term plans. Since the adoption of 2015-25 long-term plans, we have audited 14 long-term plan amendments, including six in 2016/17. Of these amendments, four involved procurement matters through the purchase, sale, or transfer of assets. Of these, two involved the sale of pensioner housing and one was the development of land for housing.

In 2018/19, our work theme will be procurement.

Issues that we continue to monitor

In 2016/17, we continued to monitor two projects that, during 2015/16, had been the subject of several requests for an inquiry. These were the Whanganui District Council's wastewater treatment plant development and the Ruataniwha Water Storage Scheme development in Hawke's Bay.

We reported on the issues with these projects in our report Local government: Results of the 2015/16 audits. In 2016/17, there were developments with the Ruataniwha Water Storage Scheme that stopped the scheme from progressing further at this point in time. Our expectations of how the Whanganui District Council manages its wastewater treatment plant development remain unchanged.

The 2018-28 long-term plans

Long-term plans give local authorities the opportunity to present revised levels of service for consultation. This allows the community to consider the services their local authority delivers and how the services are funded. Our role is to provide independent assurance about the content of, and the information and assumptions underlying, the consultation documents and long-term plans adopted by local authorities.

The analysis set out in Part 1 shows that the trends we identified in previous years remain: local authorities, as a whole, have consistently underspent when investing in their assets. This trend is most concerning in some of the local authorities' core infrastructure assets, such as water supply and flood protection assets. If budgets accurately reflect required spending, the investment that local authorities are making may not be enough to maintain the quality of their assets and the service levels.

In completing our work on local authority consultation documents and long-term plans, we will focus on the local authorities' asset-related forecasts. We will be particularly interested in why some local authorities have consistently underspent against their capital expenditure budgets.

We want to understand what they believe the effect of this underspending has had on their assets and what this means (if anything) to forecast capital expenditure included in the 2018-28 long-term plans.

We expect local authorities to have well-informed conversations with their communities about how to fund any increases in cost to maintain service levels or sustainably maintain the assets. We also expect local authorities to be clear about the consequences if they choose not to fund any increases in cost. Transparently presenting their information will assist elected members in making decisions through the long-term plan process.

We will report our findings of our audits of the local authority consultation documents and 2018-28 long-term plans later in the year.

44: At the time we published our report Auckland Council: Working to provide customer-centred services online, the programme was called the Customer-centric Transformation Programme.

45: Office of the Auditor-General (2017), Auckland Council: Working to provide customer-centred services online.

46: The five local authorities we looked at for the audit were Tauranga City Council, Napier City Council, Tararua District Council, Waimakariri District Council, and Dunedin City Council.

47: Office of the Auditor-General (2017), Introducing our work programme – Water management.

48: Office of the Auditor-General (2017), Inquiry into aspects of Auckland Council's Westgate/Massey North town centre project.