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

Insights into local government: 2021.

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
In this Part, we discuss the work we carried out during 2020/21 – and since – to support councils in achieving good governance, accountability, and transparency. We discuss:

Inquiries and correspondence

4.3
For 2020/21, we carried out 20 inquiries about councils. These inquiries related to issues such as conflicts of interest, concerns with procurement process, and codes of conduct. We also considered about 160 items of correspondence about council matters.

4.4
We published our responses to two matters related to procurement processes.

Council matters we looked into

Tauranga City Council car park building project

4.5
In May 2021, we wrote to Tauranga City Council after looking into the procurement process for its car park building project. The project started in 2018 but was cancelled in June 2020 because of seismic design issues with the building.

4.6
We said that aspects of the project did not meet good procurement or governance practice, such as the lack of a business case or an overall plan for procurement. An external review of the Council's project management process also identified several issues, including inconsistent processes for managing and delivering programmes, and a lack of internal project management capability.

4.7
We encouraged the Council to ensure that its policies and procedures recognise the importance of good procurement and project management processes.

Engagement of consultants at Queenstown Lakes District Council

4.8
We wrote to Queenstown Lakes District Council after concerns were raised with us about its procurement of service from a local consultancy firm. The concerns included inconsistency in the use of the Council's procurement policy or guidelines and a lack of focus on identifying or managing potential conflicts of interest.

4.9
We identified improvements that Queenstown Lakes District Council could make to strengthen its procurement and subsequent contract management processes, and the Council had started to address the issues we highlighted.

4.10
In 2022, we published our responses to two of the other matters raised in the 2020/21 period.

Masterton Civic Facility Project

4.11
In May 2022, we wrote to the Chief Executive of Masterton District Council after concerns were raised with us about aspects of the Council's Civic Centre Project. The concerns related to the business case for the civic facility and whether the Council had appropriately considered alternative options. One complainant also suggested that four councillors might have had a conflict of interest.

4.12
Based on the documents we reviewed, the Council considered various options for the civic facility, and obtained and considered expert advice to inform decisions.

4.13
We suggested that the Council should ensure that it records the reasons for key decisions, particularly where those decisions were different from what it had been advised.

4.14
The Council has since taken steps to improve the transparency of its decision-making, including keeping minutes of key discussions and decisions.

4.15
Given the significance of the civic facility project to the Council, our appointed auditor will take an ongoing interest in the project.

Queenstown Lakes District Council – Development of Lakeview land

4.16
In March 2022, we replied to concerns about the Queenstown Lakes District Council's decision to sell the block of land known as Lakeview. Some ratepayers perceived that the financial return to the Council under the agreement would not deliver good value for money.

4.17
Our work can include examining whether a public organisation has followed an appropriate or agreed process in making a particular decision and whether it has adequate controls in place to account for the money it spends and to deliver value for money. However, it is not our role to express a view about the merits of a particular decision or the policy sitting behind that decision.

4.18
Based on the documents we reviewed, it appeared that, when making its decision, the Council had considered its position, its options, and what it was trying to achieve from the arrangement. Therefore, we did not identify any issues with the council's processes that warranted further inquiry by us.

Local Authorities (Members' Interests) Act 1968

4.19
The Local Authorities (Members' Interests) Act 1968 (the Act) is an important part of the legal framework for local democracy.

4.20
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".

4.21
The role of the Auditor-General in administering the Act includes:

  • deciding applications for exemptions from, or declarations about, the discussing and voting rule in the Act;
  • deciding applications for the approval of contracts worth more than $25,000 in a financial year;
  • providing guidance to elected council members and officers to help them comply with the Act in particular situations; and
  • investigating and prosecuting alleged offences against the Act.

4.22
During 2020/21, we approved 21 elected members to provide services to their councils under contracts where payments exceeded $25,000 in the financial year.46 We approved total payments of $2.2 million for 27 contracts.47 The largest amount approved was $303,000. The average amount paid was $85,351.

4.23
We also provided guidance and investigated a small number of complaints about the non-participation rule and gave one approval for councillors to participate in a matter (parking entitlements for councillors) where they had a pecuniary interest.

Managing staff conflicts of interest

4.24
In 2021, we published a guide to managing conflicts of interest for council employees.48 We selected four councils of various size and location as case studies to highlight good practice and areas for improvement. We saw many examples of good practice, and all four councils we looked at had a reasonably up-to-date and clear policy.

4.25
We arranged our findings under three main components of effective conflict of interest management. These include:

  • having robust policies and procedures;
  • promoting an ethical culture in an organisation; and
  • ensuring that there is an understanding of how well conflicts of interest are being managed.

The 2021-31 long-term plans

Our observations on the 2021-31 consultation documents

4.26
We published Consulting matters: Observations on the 2021-31 consultation documents in December 2021. Our overall observation was that most councils had realistically confronted the challenges they face and, for the most part, produced clear consultation documents.

4.27
Councils faced a lot of uncertainty, in part because of the economic implications arising from the Covid-19 pandemic, as well as the reforms and reviews that were under way. This uncertainty was reflected in the increased number of "emphasis of matter" paragraphs included in our audit reports on councils' consultation documents.

4.28
Despite this challenging environment, councils were well placed to engage directly with their communities about the issues they face and how they plan to respond. This engagement also meant being clear on the investment needed to address those challenges.

Our audits of the 2021-31 long-term plans

4.29
In July 2022, we published Matters arising from our audits of the 2021-31 long-term plans. We found that, for the most part, councils had produced good quality long-term plans in challenging circumstances.

4.30
Many in the sector told us that the 2021-31 long-term plans were the most difficult to prepare since the plans were first required. The most significant challenge for councils to navigate was the impact of the Covid-19 pandemic, including the disruptions caused by lockdowns.

4.31
In response to the economic downturn caused by the lockdowns, many councils looked to support their communities by minimising their rates increases for 2020/21 or reducing the cost of some services not funded by rates. Some councils also brought forward programmes of work to support their local economies.

4.32
For their 2021-31 long-term plans, councils needed to consider whether they could continue to provide the Covid-19-related support they had put in place in 2019/20. Some councils could not continue to minimise their main funding source – their rates revenue – without affecting the levels of service they provide.

4.33
At the same time, the long-term issues facing councils had not gone away. These included responding to climate change, improving critical services such as providing safe drinking water, and adequately reinvesting in infrastructure.

4.34
In the 2021-31 long-term plans, we saw that:

  • councils are starting to address historical underinvestment in their infrastructure and that the long-term plans had a richer discussion of the implications of previous decisions about investing in assets and what this meant for the future;
  • many councils had made tangible progress in collecting better condition and performance information about their critical assets to support more accurate decision-making about the timing and need for asset renewals;
  • councils were setting rates at higher levels than previously to fund the increasing costs that they expect to face; and
  • there was more discussion about climate change in councils' long-term plans, including what actions they were planning or taking to adapt to or mitigate climate impacts and risks.

4.35
We issued two adverse audit opinions and nine qualified audit opinions on the 2021-31 long-term plans. In our view, the two councils that received an adverse audit opinion had not presented plans that were fit for purpose. They did not have a credible plan based on reasonable and supportable assumptions to address the challenges that they faced, so their plans did not set out a proper basis to be accountable to their communities.

4.36
It is a serious matter to give an adverse audit opinion on a long-term plan, and councils that receive them need to have greater regard to the needs of their communities.

4.37
Our audit reports on the 2021-31 long-term plans also included more emphasis of matter paragraphs than in the past, to draw readers' attention to the significant uncertainties councils faced in preparing their long-term plans. These uncertainties included:

  • the impact of the Government's proposed structural reforms of three waters services;
  • whether some councils could deliver their proposed capital expenditure programmes given the scale of the proposed programmes and the various challenges in delivering them;
  • the nature and extent of the asset condition and performance information that some councils used to inform their forecasts of three waters asset maintenance and renewals; and
  • the funding assumptions that some councils used for previous long-term plans.

4.38
We repeated our recommendation from our report on the 2018-28 long-term plans for the Department of Internal Affairs and the local government sector to review the required content for long-term plans so that they remain fit for purpose and do not include requirements that have limited value to their communities.

Other work since 2020/21

Supporting effective council audit and risk committees

4.39
Audit and risk committees provide assurance to elected members (and council management) that risk is being well managed. They also support the council in thinking longer term, beyond the issues and risks at hand.

4.40
We have continued to reinforce our expectation that all local authorities have an effective audit and risk committee. In our view, committees having an independent member, who ideally is the chairperson, supports such effectiveness because it promotes free and frank debate and provides councillors with objective advice and assurance.

4.41
This message has been conveyed to all council chief executives, mayors, and chairpersons in our letters and to elected members at our workshops. Before the local government elections in October 2022, 55 committees had an independent chairperson. However, committee memberships and chairpersons are likely to change because of the elections.

4.42
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 relationships with the chairpersons of committees.

4.43
During 2020/21, we ran a series of workshops for audit and risk committee chairpersons. These covered:

  • effective agendas and terms of reference for audit and risk committees;
  • how audit and risk committees can support the process for preparing long-term plans (including the financial and infrastructure strategies that support the long-term plan);
  • areas of audit focus for councils' long-term plans; and
  • understanding the process and links between the annual plan, long-term plan, financial statements, and annual report.

4.44
Our more recent topics have covered the audit and risk committee's role in relation to risk management, loans and debt in the local government environment, internal and external audit, addressing and managing workplace bullying and harassment, and climate change reporting.

4.45
We have recently published frequently asked questions on what "good" looks like for audit and risk committees in the local government sector.49 We will continue to support these committees in maintaining and improving their effectiveness.

Considerations for councils when setting rates

4.46
Rates are a significant component of a council's revenue. This is reflected in the audited financial statements in the annual report.

4.47
The Local Government Act 2002 and the Local Government (Rating) Act 2002 contain tightly prescribed rules about how councils' power to set rates must be used and what kinds of rates can be set. For councils, failing to comply with rating law and the associated accountability requirements can create legal and financial risks.

4.48
In June 2022, we published Setting rates: Potential issues for councils to watch for. This highlights some rate-setting issues we saw when reviewing a small sample of rates set for 2021/22.

4.49
We highlighted that it is essential that councils:

  • recognise how important it is to follow the prescriptive legal requirements;
  • get the details between the revenue and financing policy, funding impact statement, and rates resolution perfectly consistent – near enough is not good enough;
  • stay within the range of options in the Local Government (Rating) Act;
  • put in place an effective quality assurance system to check rating documents; and
  • get legal advice on their rates setting.

Council communications during the 2022 pre-election period

4.50
From 8 July 2022, candidates for elections started promoting their candidacy. This included current elected members (sitting candidates) who decided to stand for re-election.

4.51
Councils need to take care to make sure that council communications are not used, or appear to be used, for political purposes.

4.52
In July 2022, we published our Council communications during the 2022 pre-election period material. This highlights some of the main considerations councils should make when providing communications (such as media releases and interviews) during the pre-election period.

4.53
We also recommended that councils draft and implement a communication protocol for the pre-election period. The communication protocol should be based on the following principles – that information is timely, accurate, complete, fair, and neutral.

46: This included one member of a licensing trust.

47: Several councillors had more than one contract.

48: Office of the Auditor-General (2021), Getting it right: Managing conflicts of interest involving council employees, at oag.parliament.nz.

49: Office of the Auditor-General (2022), Setting rates: Potential issues for councils to watch for, at oag.parliament.nz.