Part 4: Our work to support good governance and accountability in councils

Insights into local government: 2020

4.1
For public organisations to operate effectively and achieve outcomes for their communities, it is essential that they have the public's trust and confidence. Factors that significantly influence the public's trust and confidence in councils include how well the councils carry out their governance and management responsibilities, how transparently they make their decisions, and the reliability of the information they use to make those decisions.

4.2
Elected members are responsible for what their council does and how it does it. They are obliged to make decisions on behalf of their communities in a robust and transparent way. Good governance also requires elected members to manage uncertainties and gain assurance that the council is identifying and appropriately managing organisational risks.

4.3
In this Part, we discuss the work we carried out during 2019/20 to support councils in achieving good governance, accountability, and transparency by:

sharing insights about what "good" looks like;
understanding how councils manage risk; and
supporting councils' long-term plans (LTPs) for 2021-31.

4.4
We also discuss local government procurement and the Local Authorities (Members' Interests) Act 1968.

Good practice guidance

4.5
We are in a unique position to identify and share examples of good practice to help public organisations to improve. One way we do this is by issuing good practice guidance.

4.6
We have recently updated our good practice guides about managing conflicts of interest and the Local Authorities (Members' Interest) Act 1968 (the Act). We have also updated our sensitive expenditure guidance.

4.7
We will next update our good practice guides on:

charging fees for public sector goods and services; and
audit and risk committees.

Workshops with elected members

4.8
We wrote to all council chief executives in July 2019 – and to all council mayors and chairs in October 2019, after the local authority elections – offering to run workshops with elected members. As of 31 January 2021, we had run 26 workshops, which have been attended by members of 35 councils.

4.9
Our sessions focused on:

our work and the role of the Auditor-General;
what conflicts of interest are and why they must be managed well;
the foundations for maintaining trust and confidence – competence (getting things right), reliability (being consistent and timely), and integrity (doing the right things in the right way); and
the benefit of having an effective audit and risk committee.

4.10
Alongside the workshops, we prepared a booklet: Councillors' guide to the Auditor-General. We also prepared three short videos about managing conflicts of interest, effective audit and risk committees, and maintaining trust and confidence.

Supporting effective council audit and risk committees

4.11
During 2019/20, we re-emphasised that we expect all local authorities to have an effective audit and risk committee. We also stressed that, in our view, committees having an independent member, ideally being the chairperson, supports such effectiveness.

4.12
We conveyed this message to all council chief executives, mayors, and chairpersons in our letters and to elected members at our workshops.

4.13
We are pleased to see that all councils now have an audit and risk committee. As of December 2020, 48 committees had an independent chairperson.

4.14
The focus of our work is now on supporting councils in improving the effectiveness of their committees. To do this, we are placing greater emphasis on our relationship with the chairpersons of committees.

4.15
We have run a series of workshops for committee chairpersons. We have covered Auckland Council's approach to considering the risks posed by Covid-19, how councils' audit and risk committees can support the process of preparing LTPs, and areas of audit focus for the 2021-31 LTPs.

4.16
We expect committees to provide assurance to elected members (and council management) that risk is being well-managed. We also expect committees to support the council in thinking longer term, beyond the issues and risks at hand. This will help councils to maintain the trust and confidence of their communities while managing the uncharted risks that Covid-19 and other challenges, such as climate change, has exposed them to.

4.17
We plan on updating our good practice guides for audit and risk committees in 2021/22. We are also looking at the risk-management practices of councils and expect to report on these in 2021/22.

Understanding how councils manage risk

4.18
Identifying, understanding, and managing risk is a fundamental part of effective governance. We have been familiarising ourselves with councils' understanding of, and approaches to managing, risk.

4.19
We wanted to identify what would support councils to improve how they manage risk, including strengthening how audit and risk committees operate, where this is needed. This work will include us publishing case studies of four councils to share their good practice with other councils.

4.20
Because of the challenges faced by councils, the need for effective risk-management policies and practices is now more vital than ever.

Supporting councils' long-term plans for 2021-31

4.21
Councils' LTPs are a key mechanism for communities to hold their councils to account for what the councils say they will do.

4.22
The costs, risks, and other effects of Covid-19 have been important for councils to consider as they have prepared their 2021-31 LTPs.

4.23
Councils are also turning their mind to regulatory change – most significantly, the effects of proposed three waters and resource management reforms.

4.24
We worked with Taituarā – Local Government Professionals Aotearoa (formerly known as the Society of Local Government Managers) as it prepared good practice guidance on preparing LTPs. We also worked together on the following bulletins to help elected members engage in the LTP process:

Local government procurement

4.25
In May 2020, we wrote to all council chief executives about an article we had written about local government procurement. The article asked a series of questions to help councils think about whether their procurement processes and procedures are working effectively and whether they can be improved.

4.26
The questions cover:

good governance for procurement;
planning for significant capital projects;
conflicts of interest;
emergency procurement;
procurement capability and capacity;
procurement policies and training;
contract management; and
achieving broader outcomes through procurement.

Local Authorities (Members' Interests) Act 1968

4.27
The Act was designed to help protect the integrity of local government by ensuring that local authority members cannot take advantage of their official position for personal financial gain.

4.28
The Act has the following two main rules:

Section 3 states that members cannot benefit from contracts with the local authority if more than $25,000 of payments are made under those contracts in any financial year. We refer to this as the contracting rule.
Section 6 states that members cannot participate in matters before their local authority that they have a financial interest in, other than an interest in common with the public. We refer to this as the non-participation rule.

4.29
Although the principles underlying the Act are relatively simple, the detail of these rules and the various exemptions are complex. The Act is also out of date and the rules are not always easy to apply in a modern local government context.

4.30
However, local authorities and their members need to understand the Act, because breaching its rules can lead to a criminal conviction or disqualification from office. We have produced a plain English guide to help local authorities and elected members understand their responsibilities.²³

4.31
An earlier edition of this guide covered non-financial interests and predetermination. However, the Act covers only the financial interests of members. Because of this, our guidance about non-financial interests and predetermination is now in a separate guide: Managing conflicts of interest: A guide for the public sector.

4.32
That guide is intended for all public sector organisations, including local authorities. It covers other types of interests that might affect a member's ability to participate in their local authority's decision-making.

4.33
The Auditor-General has a special role under the Act. The Auditor-General can give prior approval and, in limited cases, retrospective approval for contracts that would otherwise disqualify the elected member. The Auditor-General can also give approval to a member to participate in local authority decision-making. We have a strong focus on providing guidance and assistance to help councillors and staff do the right thing rather than investigating potential breaches after the event.

4.34
During 2019/20, we considered six requests for approval to participate in local authority decision-making (section 6 of the Act). Four of these requests were from councillors at one council (see Part 5).

23: Office of the Auditor-General (2020), Local Authorities (Members' Interests) Act 1968: A guide for members of local authorities on managing financial conflicts of interest.

Sharing insights about what "good" looks like