Submisson table

The Bill proposes, regardless of which delivery model is chosen, that water services are removed from the long-term plan (LTP) and council annual report. Instead, this information will be included in a water services strategy (Schedule 3) and waters services annual report (Schedule 4).

A local authority water service provider is required to consult with its community on the content of the water services strategy (clause 195(1)). There is no proposed audit scrutiny of the local authority water service provider’s engagement with local communities.

The Bill does not require a water organisation or its shareholders to consult communities or consumers on a draft water services strategy (clause 196(5)).

In my view, this reduces accountability to the public. Under the current arrangements, councils consult on their LTP and my office provides independent assurance.

The different arrangements for a local authority water provider and a water organisation risks creating different levels of accountability to the community, depending on the delivery model chosen.

Requiring an audit only if requested is, in my view, a reduction in accountability to the public and not workable.

In terms of a reduction in accountability, the intent of Parliament when it gave the Auditor-General the role of auditing long-term plans was to provide assurance to the community that the content of those plans was reliable and focused on the right things. The audit of the long-term plan provides a vital role in ensuring the long-term plan is based on reasonable and supportable information that communities can have confidence in. In my view, the same would apply to an audit of the water services strategy.

In terms of workability, audits of this nature are complex and require planning, training, and investment in our processes to ensure they provide for a quality audit. The ad hoc nature of requests would be hard to plan for and, depending on the number requested, could affect my ability to complete other audits within statutory timeframes. Section 17 of the Public Audit Act 2001 already allows public organisations to request additional auditing services (not otherwise required by law).

The Bill is unclear which information required to be included in the water services annual report must be audited. Although section 206(1)(c) of the Bill lists the information that there must be a “report by the Auditor-General on”, only the financial statements required by clause 2(1)(a) of Schedule 4 are described as “audited”.

It is normal for both financial statements and service performance information (information about what the public organisation has done during the reporting period in working towards its broader aims and objectives) reported by public organisations to be subject to audit. Auditing this information provides assurance that it fairly presents the performance of the organisation.

My understanding is that the special purpose financial reports required by clause 2(1)(b) will not be audited. However, given this information must be included in the water services annual report, our audit of the financial statements required by clause 2(1)(a) will necessarily include a reconciliation of the information in the special purpose financial reports to the financial statements.

Clarify which statements in Schedule 4 must be audited, noting that not all information listed in Schedule 4 is capable of being audited.

I would expect to be required to audit the following:

• the financial information required by clauses 2(1)(a) and (b) of Schedule 4;
• the statement relating to capital expenditure required by clause 4 of Schedule 4;
• the funding impact statement(s) required by clause 5 of Schedule 4;
• the service performance information required by clauses 1 and 7 of Schedule 4; and
• any other service performance information that Schedule 4 is amended to require.

Although we can understand the rationale for requiring separate water documents, we note that there will be an overlap between the two sets of documents. For example, whole-of-council financial information contained in the LTP (in the financial strategy, forecast financial statements and the accompanying forecasting assumptions, funding impact statement, and revenue and financing policy) would still include water-related forecasts. Accordingly:

• local authorities might find it difficult to know whether an amendment to the water services strategy triggers an LTP amendment (which must be audited); and
• the audit of the LTP (and LTP amendments) are likely to scope in much of the financial content of a water services strategy, notwithstanding that the water services strategy is not audited.

We are also concerned that having two sets of accountability documents could make it more complicated for the community to meaningfully engage with a local authority’s strategic and operational direction. For example, a member of the community may need to consider both documents to understand the trade-offs made by the local authority in setting its 10-year strategy.

The LTP or existing water services strategy of a territorial authority contains more than just the water services transferred to the new water organisation.

Through the transitional arrangements it is not clear that it is intended that just the parts of the LTP that pertain to water services cease to apply or if a new LTP is required.

We are concerned that a complicated purpose statement could result in water services strategies that are unwieldy and consequently be of less benefit for the water services provider and its community. It could also add to the costs incurred by the water services provider to produce the water services strategy.

In contrast, the purpose statement for LTPs is five limbs (section 93(6) of the LGA) and the purpose statement for the New Zealand Health Plan has one limb (section 50(2) of the Pae Ora (Healthy Futures) Act 2022).

It is also not clear how the contents requirements set out in Schedule 3 will enable the completed water services strategy to meet the purpose statement. The limbs of the purpose statement we cannot see reflected in schedule 3 are:

• 192(1)(b) - transparency about the costs and level of investment associated with meeting regulatory requirements.
• 192(1)(d) - supporting integrated decision making (especially for a local authority, as this decision-making is made in isolation from other decisions).
• 192(3) - for water organisations preparing a water services strategy, shareholder input (because it would be obtained to produce the water services strategy but does not have to be described and reflected in the water services strategy).

A water services annual report must report the results of any measurement of progress towards achieving outcomes and objectives for each group of water services activities of the water services provider (clause 1(2)(c) of Schedule 4).

A water organisation’s water services strategy must include:

• measures and targets by which the water organisation’s shareholders can assess the water organisation’s performance in relation to its objectives and outcomes (clause 2(1)(e) of Schedule 3); and
• how the organisation has performed in relation to any performance indicators and measures set out in the organisation’s statement of expectations” (clause 6(2)(d) of Schedule 3 – we assume that this should be reframed as prospective information).

Comparing financial statements with the forecast financial statements set out in the water services strategy could result in not using the most up to date forecast financial statements.

Clause 201(1) requires the water services annual budget to also contain forecast financial statements.

Extending clause 2(3) of Schedule 4 to cover forecast financial statements contained in the water services annual budget would enable actual results to be compared to more recent forecasts.

We recommend consideration is given to the effect on accountability documents (water services strategies, LTPs, annual plans, water services annual budgets, annual reports, water services annual reports) if various scenarios occur, for example:

• If a local authority decides that its first water services strategy will come into force on 1 July 2026 (and so will have two years until its first water services annual report (clause 6 of Schedule 1), and its 2024-2027 LTP will not align with its first water services strategy);
• If an existing council-controlled organisation transitions into being a water organisation (and so must not comply with sections 64 to 69 of the LGA;
• If a new water organisation is established before 1 July 2027 but its first water services strategy does not come into force until 1 July 2027.

We also recommend consideration is given to what happens if a local authority or water organisation does not adopt its first water services strategy in time.

The Minister must initiate a review of the water services system after about five years.

Under clause 429(1)(h) of the Bill, the Minister-appointed reviewer has the ability to require information from “any other relevant person or body”.

In my view, the reviewer should not be able to require information from the Auditor-General. I have wide powers to access information held by the public entities I audit, and this gives rise to obligations about how I treat that information. For this reason, the Official Information Act 1982 does not apply to the Auditor-General and the Privacy Act 2020 has exemptions for the Auditor-General.

Section 30 of the Public Audit Act 2001 empowers me to disclose information, but before doing so I must consider several factors, including an auditor’s professional obligations concerning confidentiality of information. Were the Auditor-General to receive an information request from the reviewer, I would consider that request in accordance with section 30 of the Public Audit Act 2001.

Clause 47(2)(b)(i) of the Bill makes a consumer trust subject to the Local Authorities (Members’ Interests) Act 1968. If the Local Authorities (Members’ Interests) Act 1968 applies:

• A trustee cannot be concerned or interested in a contract(s) with the consumer trust if payments under the contract(s) exceed $25,000 in a financial year, unless the Auditor-General gives approval;
• A trustee must not participate in consumer trust decisions in which the trustee has a financial interest, other than interest in common with the public, unless the Auditor-General grants a declaration or exemption allowing such participation.

Breach of these rules is an offence.

I have for many years raised concerns about the Local Authorities (Members’ Interests) Act 1968. In light of these concerns and considering the type of contracts a consumer trust is likely to enter into, and the type of decisions consumer trusts will be making, I question whether it is appropriate or necessary for the Act to apply to consumer trusts.

In addition, I note that trustees must not have any roles or responsibilities other than their roles and responsibilities as shareholders in a water organisation (clause 44(3)) unless the Secretary grants an exemption from such a requirement (clause 55(4)). The Secretary’s oversight also suggests that the application of the Local Authorities (Members’ Interests) Act 1968 is not necessary.

Amend clause 204 to include annual report requirements for new organisations and audit requirements.

Remove the reference to the Auditor-General agreeing to arrangements and what information is included.

The Auditor-General is the auditor of every public organisation and is required to audit the information that a public organisation is required to have audited (sections 14 and 15 of the Public Audit Act 2001).

My view is that independent audits or assurance of a public organisation’s disclosed information should be carried out by the Auditor-General.

Compliance with Schedule 4 is the responsibility of the water services provider.

As part of any annual audit, the Auditor-General is required by the Auditor-General’s auditing standards to report on non-compliance with laws and Regulations that has a material effect on financial statements and performance information (either directly or indirectly). Other non-compliance may be identified, but it is not the responsibility of the auditor, nor is it within the scope and purpose of an audit, to identify all matters of non-compliance. An annual audit is not designed to identify compliance with all laws and regulations, and such an expectation is impracticable.

I note that we are currently required by section 99 of the Local Government Act 2002 to report on “the local authority’s compliance with the requirements of Schedule 10 that are applicable to the annual report”. However, this type of work is unusual when carrying out an annual audit and creates an unreasonable expectation of the audit. Removing the requirement for water services annual reports will reduce the audit investment needed to perform the audit without affecting the quality of the audit.

Remove “For the purposes of preparing a water services annual report”.

Add water organisations to Schedule 1 of the Public Audit Act 2001 (classes of public entities).

Clause 205(4)(b)(ii) refers to an “audit statement”. The correct terminology is “audit report”.

I note that it would be unusual for an annual report to contain two separate audit reports. Practically, both the information related to the territorial authority’s annual report under section 99(1) of the LGA and the information related to the water services annual report under clause 205 would be audited by the Auditor-General during the annual audit of the territorial authority.

An audit report identifies what information has been audited, so if there were only one audit report it would still be clear to the reader of a combined annual report that the auditor has audited the information required to be audited under the LGA and the information required to be audited under the Bill.

Clause 194 (2) requires all information that is included in a water services strategy must, unless otherwise required under Part 4 of the Commerce Act 1986, be prepared in accordance with generally accepted accounting practice if that information is of a form or nature for which generally accepted accounting practice has developed standards.

The strategy includes a funding impact statement (clause 5(2)(e)) of Schedule 3 of the Bill).

I understand that, where a local authority is a water services provider, the intent is that these financial statements would not cover the entire organisation. Instead, they would provide forecast financial information relating to the local authority only in its capacity as a water services provider.

However, I do not think that this is clear in the Bill as it is currently drafted, especially considering that a complete set of GAAP-compliant financial statements that cover only a part of a reporting entity is unusual and might be complex to prepare.

Clause 206(2) requires all information that is included in a water services annual report must, unless otherwise required under Part 4 of the Commerce Act 1986, be prepared in accordance with generally accepted accounting practice if that information is of a form or nature for which generally accepted accounting practice has developed standards.

The water services annual report includes funding impact statements (clause 5 of Schedule 4 of the Bill).

I understand that, where a local authority is a water services provider, the intent is that these financial statements would not cover the entire organisation. Instead, they would provide financial information relating to the local authority only in its capacity as a water services provider.

However, we do not think that this is made clear by the Bill as it is currently drafted, especially considering that a complete set of GAAP-compliant financial statements that cover only a part of a reporting entity is unusual and might be complex to prepare.

Clause 201 of the Bill does not require the annual budget document to comply with GAAP. This seems inappropriate, given the content of the document is mainly financial information.

I note that under section 111 of the LGA, all information that is required to be included in a local authority’s annual plan (except the preparation of funding impact statements) must be prepared in accordance with GAAP if that information is of a form or nature for which GAAP has developed standards.

There is no requirement for the water services annual budget to contain the forecast financial statements that were prepared for the financial year that is the year before the year covered by the plan. This will be addressed if the annual budget document must comply with GAAP (because this is a GAAP requirement).

Our concern is that, without this information, it could make it more difficult for a reader of the water services annual budget to interpret any changes presented in the document. We note that a local authority’s annual plan must include the previous year’s forecast financial statements (see clause 19 of Schedule 10 of the Local Government Act 2002).

While we note this is same requirement under clause 17 of Schedule 10 in the LGA, we suggest also requiring significant assumptions related to other forecasts, such as the type or nature of services provided and the performance measures and targets to be identified.

Including such information would provide readers of the water services strategy better information on the significant assumptions a water services provider has made in determining which services are presented, and the expected performance of those services.