Auditor-General’s overview

E ngā mana, e ngā reo, e ngā karangarangatanga maha o te motu, tēnā koutou.

For councils, 2020/21 was a challenging year. The Covid-19 pandemic created extraordinary circumstances when councils were completing their 2021-31 long-term plans.

In some instances, councils redrafted their 2020/21 annual plan budgets in response to the predicted impact of the Covid-19 pandemic on their communities. Many councils looked to support their communities by minimising rates increases for 2020/21 or reducing the cost of some services not funded by rates.

Several reform proposals could significantly affect the scale and nature of local government – the Three Waters Reform Programme, proposed changes to the Resource Management Act, and the Future for Local Government review. This has added pressure to councils at a time when nationwide skills shortages, higher turnover, and increased recruitment costs have made delivering services more challenging.

At the same time, the long-term issues councils face have not gone away – such as responding to climate change and the need to maintain and invest in infrastructure assets that support the delivery of services. I recognise that it can be difficult for councils to participate in the reform process while also continuing to deliver core services, improve their organisations, and refine their plans.

Councils are sometimes criticised for the way they operate and how they perform. There are no doubt areas where improvements can be made. That said, I am encouraged by the progress the sector made in 2020/21, particularly in such a challenging environment.

Councils should be commended for generally maintaining services, despite the combined challenges of the Covid-19 pandemic and the reform proposals affecting the sector. This did not occur by chance but through the hard work and dedication of council staff and councillors up and down the country. I thank them for the support they provide to our communities.

In my report Matters arising from our audits of the 2021-31 long-term plans, I was pleased to see that councils are moving to address historical underinvestment in their infrastructure. In general, the long-term plans outlined the challenges that this has created and actively considered the implications of previous decisions about the level of investment in assets and what this means for their communities.

Many councils made progress in collecting better condition and performance information about their critical assets to support more accurate decision-making about the nature and timing of asset renewals.

Councils included more discussion about climate change in their long-term plans, including what actions they were planning or taking to adapt to or mitigate climate change impacts and risks.

The context for councils preparing the 2024-34 long-term plans is likely to change if reforms progress as planned. However, long-term integrated planning will remain important. Regardless of context, councils need to continue to reliably and efficiently deliver a range of services to maintain the trust and confidence of their communities.

In 2020/21, councils continued to invest in their infrastructure, including increasing their level of investment in their three waters assets. This has occurred despite the challenges posed by the Covid-19 pandemic. Border closures, a tight labour market, supply chain constraints, and the need to balance budgets have also created challenges for councils. Despite these challenges, councils delivered the highest capital expenditure programme for nine years.

In response to historical underinvestment in their infrastructure assets, councils are increasing their renewals expenditure when compared to depreciation expense. However, a gap remains. Although we remain concerned that councils might not be investing enough in critical assets, we acknowledge that councils are planning to progressively increase this investment. In 2020/21, capital renewal expenditure throughout the sector has increased to 78% of depreciation (in 2019/20, it was 74%).

We looked at key areas of council service delivery that have a high level of public interest. At face value, there was no notable improvement in the times taken to process building and resource consents in 2020/21 compared with the previous year. However, processing times have been affected by the high level of consenting activity and the increasing complexity of consent applications at the same time as processing capacity has been constrained by the impact of the Covid-19 pandemic.

Despite councils’ increased investment in three waters assets in recent years, we have not seen an improvement in reported performance. Although increased investment might allow for improvements in performance, it is not a direct causal relationship. There might also be a time lag between increased investment and an improvement in performance.

The lowest performance was for the “safety of drinking water” measures. These measures are used to show whether councils are complying with drinking water standards. We would encourage councils to investigate the reasons for noncompliance and prioritise remedial actions, particularly where this could affect water quality.

Effective governance of councils remains vital, as does the integrity of councillors and staff. In this regard, I am pleased to see continued effort by councils to enhance the effectiveness of audit and risk committees. Councils are increasingly appointing independent chairpersons and members to these committees. Independence allows the committee to provide the best objective advice to support council governance and decision-making. My Office has continued to support good governance in the sector by regularly sharing our insights and observations, including regularly publishing good practice guidance.

Annual reports

The global auditor shortage continued to provide challenges for councils and my auditors during 2020/21. Because of these challenges, the statutory reporting deadline under the Local Government Act 2002 was extended to 31 December 2021. These resourcing challenges have also affected the delivery of this report to Parliament. This is a situation that neither councils nor my auditors wanted to be in.

Despite this, most councils completed their audits within the extended statutory deadline. Twelve councils had their audit opinions signed after the reporting deadline. This was because of a combination of delays – driven by the auditor shortage and the effects of the Covid-19 pandemic, including lockdowns.

My auditors issued a similar number of qualified audit opinions to last year. Six councils received qualified audit opinions on their financial statements, and there were 19 qualifications on aspects of councils’ performance information, such as inaccuracies in the calculation of customer complaint information.

In all instances, the qualification was limited to a disagreement or limitation of scope about a specific aspect of the annual report. Given its significance, we also drew attention in our audit reports to uncertainties arising from the Three Waters Reform Programme.

I thank my auditors who have continued to provide assurance to communities about whether councils’ annual reports are free from material error – at a time when both financial and service performance information are more critical than ever to the trust and confidence that communities have in their councils.

Nāku noa, nā

John Ryan
Controller and Auditor-General | Tumuaki o te Mana Arotake

8 December 2022