Part 3: Our recent reports and letters about local government

Our 2018 work about local government.

In 2018, we published a range of reports and letters related to local government:

We also published on our website four letters that we sent to councils. These letters responded to concerns raised with us about aspects of councils' performance. We chose to publish these letters on our website because the concerns raised were of high interest to the affected communities.

In this Part, we provide summaries of these reports and letters.

Monitoring how water is used for irrigation

We looked at how freshwater used for irrigation is tracked and measured by six councils. Together, these six councils monitor about 90% of freshwater used for irrigation in the country. To carry out our audit, we examined how well water meter installation was managed, the quality and use of data collected, and whether the data was contributing to positive change.

The six councils faced challenges, including a shortage of companies to install the water meters. Water meters have now been installed for almost all of the largest water takes. However, the quality of data collected can be poor, and there can be problems when data is collected manually. We considered that data collected electronically would be more accurate, timely, and useful.

The six councils are starting to use information from water meters to educate people and organisations holding water permits about how they can use freshwater more efficiently and to show how much water is used. However, we considered that more could be done. We recommended that councils continue to work with water permit holders and data service providers to improve the timeliness and completeness of the water-use data received.

Our main recommendations were for the Ministry for the Environment. We recommended that the Ministry:

  • review the part of the Resource Management (Measurement and Reporting of Water Takes) Regulations 2010 that allows for manual data collection and annual data provision, and work with councils that have oversight of water metering, to ensure that people and organisations holding water permits regularly submit accurate data using automated processes;
  • work with councils that manage freshwater resources and other interested groups to use water-use data to encourage compliance with water permits and the limits they impose, enabling effective and efficient use of freshwater resources; and
  • evaluate the benefits of water metering to understand how it has changed the way people and organisations holding water permits have used what they have been allocated.

Port companies: Matters arising from our 2016/17 audits

In June 2018, we wrote to port companies to raise two matters identified during our 2016/17 audits.

First, we identified considerable variation in individual port companies' reported returns. The different approaches port companies take to valuing their property, plant, and equipment partly account for the variation in reported returns.

We were concerned that this affects the ability of shareholders, Parliament, and the public to assess the performance of the individual port companies and the port sector as a whole.

Financial reporting standards allow port companies to value their property, plant, and equipment at either cost or fair value.3 We consider that it is most appropriate to use fair value and to assess the fair value based on the expected cash flows to be generated. This will provide the most useful financial information to stakeholders, help inform investment decisions, and make company and sector performance more transparent.

Secondly, two port companies have been severely affected by earthquake damage, which had consequences for their business continuity and insurance cover.

Lyttelton Port Company Limited and CentrePort Limited had their assets badly affected by earthquake damage. The damage to these companies' assets and their ability to operate was considerable. However, both companies were able to continue operating, and both had insurance cover to assist with the amount of reinvestment needed for the future.

The consequences of such natural events are often ongoing and create a variety of uncertainties years after the events.

In considering our letter to port companies, we recommend that councils regularly review and understand the performance of the investments they hold, whether the investment is in a port company, a council-controlled organisation, an investment property, or cash. Investment rates of return vary over time, and so can the cost of insuring property and plant.

In our 2013 discussion paper Insuring public assets, we asked "How well are risk assessments being done to inform decisions about insurance, including assessments of the likely costs to replace assets?" We encourage councils to ask these types of questions about their investments. For other assets, we encourage councils to ask "Have we done the work to understand and manage our risks?" and "Are we fully satisfied that our valuation methodologies and policies are current best practice?"

Managing the supply of and demand for drinking water

We audited four councils – Horowhenua District Council, Kāpiti Coast District Council, Manawatu District Council, and Palmerston North City Council – to understand the challenges they face in supplying drinking water to their communities.

Supplying drinking water can be complex. As with providing stormwater and wastewater infrastructure, drinking-water supply involves expensive underground assets – but it also needs expensive above-ground assets, such as water treatment plants and reservoirs. For all four councils, some aspects had been done well and others could be improved.

All four councils were facing challenges and funding constraints. In the absence of national outcomes for supplying drinking water, principles for decision-making, or requirements that set out what a high standard of water supply management should look like, councils are responding to their particular challenges in ways that they consider prudent and responsible.

Currently, there are stronger incentives for councils to take a traditional supply management approach and relatively weak incentives for councils to carry out demand management by conserving water when managing their drinking water supply. A traditional supply management approach tends to put less emphasis on leak reduction and water conservation, especially when water supplies are considered plentiful. We recognise that more councils are focusing more on water conservation and efficiency, including understanding more about the end use of water.

In our view, councils that have a broad range of objectives for providing drinking water and a greater balance between supply and demand management tools are in a better position to respond to future challenges. This is because they have taken a more comprehensive approach to providing drinking water. Although a traditional approach is satisfactory in the short or medium term, it risks limiting councils' ability to take a planned and deliberate approach to responding to the range of challenges that could arise.

Effectiveness of Auckland Council's post-implementation review process

Post-implementation reviews (PIRs) evaluate how well a project has been managed and whether the benefits of that project have been achieved. They are an important part of an organisation's performance management framework, providing information about performance and lessons for future projects.

As part of our regular reviews of Auckland Council, we reviewed the process used for carrying out the PIRs of two of its projects: "Contact Centre Consolidation" and "Libraries Fit for the Future". We looked at how effective, fair, and balanced the PIR process was for each project.

Our review found the process used for carrying out the PIRs was robust and followed good practice guidance. The planning and fieldwork was effective, which meant relevant evidence was collected. There were some matters that, in our view, could be improved and our report includes several recommendations about the PIR process.

There are lessons for all councils in our report. We consider the use of PIRs to be good practice. For all councils considering carrying out a PIR, we prepared a checklist to support effective reviews.4

Sea Change – Tai Timu Tai Pari: Creating a marine spatial plan for the Hauraki Gulf

The Sea Change – Tai Timu Tai Pari project was to prepare a marine spatial plan for the Hauraki Gulf, New Zealand's first marine spatial plan. We audited how the public organisations involved, including Auckland Council and Waikato Regional Council, set up the project and supported the Stakeholder Working Group and Project Steering Committee. We also looked at how the organisations planned during the project for implementation of the marine spatial plan.

We wanted to identify what other organisations could learn from this collaborative approach. Similar collaborative approaches are increasingly used for managing rivers, lakes, and streams (and other natural resources) and to support councils' decision-making.

The project was large and ambitious. It was aimed at addressing a complex problem that involved many overlapping interests. In many ways, the project was a successful example of a stakeholder-led collaborative approach. It resulted in a completed plan with general support from those who prepared it.

However, the project plan is not easy to implement, and those involved in the project were frustrated at the lack of progress in implementing the plan. There needed to be more communication of the plan with stakeholders to ensure that everyone was in agreement. There also needed to be more of a balance between the stakeholder-led group having enough independence during the project and still having the right amount of involvement from government organisations.

It is important to allow enough time for collaboration between representatives so they can effectively discuss, negotiate, and agree on complex issues. Towards the end of the project, and when the plan had been finished, there was little discussion with the community. Community involvement on the project plan is important because it provides an opportunity for community members to provide feedback. The plan could have had been better communicated with the community, which would have helped give the plan wider support.

The project's success ultimately depends on how the plan is used and whether its recommendations are incorporated into local and central government decision-making.

Collaborative approaches are increasingly used to prepare plans for protecting natural resources. We encourage all organisations that are setting up collaborative planning projects to consider what can be learned from the Sea Change – Tai Timu Tai Pari project.

Managing stormwater systems to reduce the risk of flooding

Our report described how Dunedin City Council, Porirua City Council, and Thames-Coromandel District Council managed their stormwater systems to protect people and their property from the effects of flooding. Flooding is our most frequent natural hazard, with multiple, social, environmental, and economic implications.

The three councils had an incomplete understanding of the flood risk in their districts. Much of their assessment of flood risk has been based on the information collected after a flood. This reactive approach risks councils focusing on reducing the effects of the most recent flood, rather than considering all possible flooding events and their effects and prioritising work to the most significant risk. It also means that the councils cannot forecast accurately and risk being poorly prepared for unanticipated events.

The three councils have gaps in their understanding of the current state of their stormwater systems. These gaps limit their ability to make well-informed and deliberate decisions about how to manage those systems. It also means that the councils are unlikely to have had informed conversations with their communities about the potential risk of flooding and the cost of reducing that risk.

Councils as a whole are planning to continue spending less than depreciation on renewing stormwater assets, which might indicate that they are underinvesting in maintaining those assets. Underinvestment will increase the risk of stormwater systems being unable to cope with rainfall that results in flooding. The historical underinvestment in stormwater systems creates a level of urgency for improvement. People need to be confident that the stormwater system will continue to protect their homes and property from flooding.

The three councils were already aware of some of the issues that we identified and are planning improvements. These councils are at varying stages of making improvements. However, all three have more to do.

Our main findings and recommendations are relevant to all councils. All councils face challenges when managing their stormwater systems, including ageing infrastructure, limited capacity, managing costs to the community, and having the right people and skills in their organisations. We recommended that all councils consider our findings and what actions they need to take to minimise the risk of flooding in their communities.

Inquiry requests and correspondence

The Auditor-General gets many inquiry requests from the public, including from ratepayers, members of Parliament, and councillors, to inquire into aspects of local government performance.

In 2018, we received more than 220 queries and requests for us to look into local government issues. The most common types of issues and concerns raised were:

  • conflicts of interest by councillors;
  • concerns about the use of ratepayer funds;
  • councils' developments/initiatives and support for third-party initiatives; and
  • concerns with local governance and management process/behaviour.

We are not a complaints-resolution organisation. Where possible, we encourage people to raise their complaints with their council first. This will allow the council to have the opportunity to respond directly to the correspondent.

There are limitations to our role. In most instances, the Auditor-General has the power only to inquire and report on issues raised, not the power to intervene and stop councils' process. It is also not our role to identify, monitor, or enforce the legal or moral obligations of councils.

For most inquiry requests, we can close an issue by obtaining relevant information from the organisations that were requested for an inquiry. If not, we pass the information on to our appointed auditor of the organisation for consideration and any appropriate action during the annual financial audit. For some significant issues, we carry out a more in-depth inquiry.

Before carrying out any inquiry work, we consider how serious these matters are and whether, by carrying out an inquiry, there will be lessons that other organisations can use.

Tasman District Council – Waimea Dam

We received correspondence from several people raising concerns about aspects of Tasman District Council's Waimea Community Dam development. Correspondents asked us to intervene in decisions being made by the Council about the Waimea Community Dam and how it will be funded. In November 2018, we wrote to the Council with our response to the matters raised. The Council published our letter on its website.

The concerns raised with us included issues about the adequacy of consultation, the accuracy of publicly available information, the accuracy of information that the Council used to inform its decisions, compliance with resource management expectations, the adequacy of the consideration of possible alternatives, the appropriateness and robustness of the design, and the appropriateness of scientific advice and methods used.

After visiting the Council, examining documents, and talking to staff, we determined that the concerns raised were mostly about policy decisions made by the Council. Policy decisions are for councillors to make and are outside of our mandate to comment on or intervene in.

Rotorua Lakes Council – Mudtopia

We received a request to inquire into the Rotorua Lakes Council's financial management, accountability, and governance of the Mudtopia event.

In particular, we were asked to carry out an independent and forensic audit of various transactions relating to Mudtopia. The correspondent also raised concerns about the procurement of some services for Mudtopia, which suggested a conflict of interest.

After examining documents provided by the correspondent and the Council and talking to Council staff, we decided not to carry out a formal inquiry into the matters raised.

We drew this conclusion because the expenses incurred by the Council from the Mudtopia event were already publicly available for scrutiny. The public had the ability to question the Council about individual expenses and hold the Council accountable.

We did find matters for improvement in the Council's process and decision-making in relation to the governance arrangements and support of the event.

We expect public organisations to have full and proper records of their work that show what decisions were made, how the organisations made those decisions, and the basis on which they were made.

Greater Wellington Regional Council – bus services

We received correspondence asking us to look into various aspects of the governance, management, design, and implementation of the new bus network and services by the Greater Wellington Regional Council. In September 2018, we wrote to the Council and published the letter on our website.

To prepare our letter, we reviewed extensive material, available on the Council's website, about the planning and procurement of the new bus services. We also reviewed extensive additional information the Council made available to us. We spoke with some of the bus operators to understand their views on what the issues were.

The Council's short-term priority was addressing implementation issues, such as ensuring that there are enough buses and drivers and the real-time transport information is accurate. Those were issues that the Council was taking steps to address and were not matters we could help with.

One of the concerns raised with us was whether the Council had diverted funding for buses to trains. The Council and the New Zealand Transport Agency made available information indicating that funding had not been diverted from buses to trains.

At the time, our impression was that the Council was taking reasonable and practical steps, in the circumstances, to address the operating issues with the network. As well as the more immediate actions, it had identified some medium and longer-term actions to address the implementation issues.

By the end of 2018, the Council and others had appeared before a Parliamentary select committee on several occasions. Because of the select committee's involvement, and efforts by the Council to remedy issues, we decided not to inquire further. However, we will continue to monitor developments and review any new issues or information that arise to decide whether further work is warranted.

Kāpiti Coast District Council – investment fund proposals

Kāpiti Coast District Council has been exploring how to manage its finances over the long term, in accordance with its financial strategy. This included exploring the establishment of two long-term investment funds.

Several people contacted us to raise concerns about the proposal by the Council to establish these investment funds. The proposal was to borrow up to $20 million from the New Zealand Local Government Funding Agency to invest in two new long-term investment funds to help meet future growth and resilience-related expenditure.

The Council expected to achieve an overall net return of 3.5% on the money invested after paying interest on the money borrowed and associated costs. This would have involved an investment mix of up to 65% investment in equities to achieve the overall investment returns expected.

We met with the Mayor and Chief Executive of the Council to discuss the Council's plans. In December 2018, we wrote a letter to the Chief Executive describing our views and expectations. We published this letter on our website.

It is not our role to question councils' policy decisions. However, we did expect the Council to carry out appropriate due diligence, given the nature of the proposals and the inherent risks involved. We also expected the Council to provide good governance over the investment funds and provide clear and transparent reporting on the performance of the funds. We set out these expectations in our letter.

The Council has since decided not to proceed with the proposal.

3: External Reporting Board (2015), New Zealand Equivalent to International Financial Reporting Standard 16: Property, Plant and Equipment (NZ IAS 16), Wellington. The term "fair value" is defined in for-profit accounting standards as "the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction".

4: For the checklist, see: Office of the Auditor-General (2018), Effectiveness of Auckland Council's post-implementation review process, Appendix 2, at