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Part 6: Our recent and ongoing work in the local government sector

Local government: Results of the 2015/16 audits.

6.1
In this Part, we discuss discretionary work about local government we performed during and since 2014/15.

6.2
For local government, the bulk of the Auditor-General's resources are used for annual financial audits and audits of long-term plans. These audits are statutory requirements for us under section 15 of the Public Audit Act 2001, and we have drawn from their findings throughout this report. Generally, public entities pay us directly for this work.

6.3
As well as these statutory requirements, the Auditor-General has the power to conduct discretionary work in the form of performance audits (under section 16 of the Public Audit Act 2001) and inquiries (under section 18 of the Public Audit Act) examining aspects of local government performance. Generally, Parliament, rather than the public entities, pays for this work.

6.4
Under section 104 of the Local Government (Auckland Council) Act 2009, the Auditor-General is required to review the service performance of Auckland Council and its council-controlled organisations.

Performance audits

6.5
We recently published six reports examining aspects of local government. Figure 8 summarises the findings of these reports.

Figure 8
Recent performance audit reports on local government

TitleDateLocal authorityFindings
Reviewing aspects of the Auckland Manukau Eastern Transport Initiative October 2015 Auckland Council Our report found that progress with technical aspects – such as reaching design solutions, developing procurement options, and budget management – had been strong. However, as part of its monitoring and reporting, Auckland Transport needed to improve its focus on relationships with stakeholders, contractor performance, and the benefits delivered to date. We made 12 recommendations to help Auckland Transport strengthen the Auckland Manukau Eastern Transport Initiative's governance, accountability, and programme management arrangements.
Governance and accountability for three Christchurch rebuild projects December 2015 Christchurch City Council Our report looked at the governance arrangements for three projects to rebuild essential facilities in Christchurch: the Bus Interchange, the New Central Library (which is owned by Christchurch City Council), and the Acute Services Building at Christchurch Hospital. We found that governance was most effective when there was a clear structure and when accountabilities, roles, and responsibilities were well defined and understood. Strong leadership was an important part of effective governance, and being clear about who is accountable for project outcomes supports effective governance.
Principles for effectively co-governing natural resources February 2016 Various councils Throughout New Zealand, iwi, hapū, and community groups are taking part in projects to monitor, protect, and enhance the health of their local environment. Many of these projects are done in partnership with local authorities.

Our report drew on the experiences of eight co-governed initiatives to identify some principles to consider when setting up and running co-governance and co-management initiatives. The principles are to:
  • build and maintain a shared understanding of what everyone is trying to achieve;
  • build the structures, processes, and understanding about how people will work together;
  • involve people who have the right experience and capacity;
  • be accountable and transparent about performance, achievements, and challenges; and
  • plan for financial sustainability and adapt as circumstances change.
The report also highlighted that successful co-governance relies on effective relationships. All parties involved need to value and prioritise building an effective relationship. This takes time and commitment. Building and maintaining mutual trust and respect needs constant attention to achieve good environmental outcomes.
Effectiveness and efficiency of arrangements to repair pipes and roads in Christchurch – follow-up audit May 2016 Christchurch City Council Our report found that the public entities, including Christchurch City Council, had made good progress in addressing the recommendations we made in our 2013 report. The Stronger Christchurch Infrastructure Rebuild Team (SCIRT) has made solid progress in repairing damaged pipes and roads. Public entities have also improved the governance arrangements for SCIRT. These improvements include clearer roles and responsibilities, more effective guidance and clearer direction to SCIRT, and improvements in reporting.
Auckland Council: How it deals with complaints August 2016 Auckland Council As part of our periodic reviews of Auckland Council's service performance, we audited Auckland Council's complaints-handling process. Overall, Auckland Council has a focus on resolving complaints, and most are dealt with in a timely manner. But it could do better in some aspects – in particular, collecting information on the complainant's perspective of how the Council handled their complaint.
Watercare Services Limited: Review of service performance October 2016 Auckland Council Our report outlines the good progress that Watercare made in response to recommendations in our 2014 report.

Note: All of these reports are available on our website, www.oag.govt.nz.

6.6
Lessons from this work are relevant to all local authorities. These include the:

  • usefulness, as part of project monitoring, of reporting on relationships with stakeholders, contractor performance, and the benefits delivered to date;
  • importance of clear roles, clear responsibilities, and strong leadership to effective governance; and
  • value that can be obtained from customer complaints when the information is recorded and analysed in its entirety.

6.7
Although some aspects of these lessons might appear elementary, they show the importance of getting the basics right – something that is not always achieved.

Inquiry requests

6.8
We regularly get requests from members of Parliament, public entities, and members of the public, including ratepayers, to inquire into aspects of local government performance. In general, these requests relate to concerns about how local authorities use resources, which can include financial, governance, and management matters.

6.9
Inquiry requests can be a useful source of information for us. They indicate concerns that ratepayers have and can help us to plan what work we do. We take those requests into account when preparing our annual work plan and annual financial audits.

6.10
We are not a complaints resolution organisation, and we have limited resources for inquiry work. We cannot and do not inquire into every local government issue raised with us.

6.11
Where possible, we encourage complainants to resolve their complaints with the organisations concerned in the first instance. This includes encouraging councillors who complain to us about their councils to raise their concerns with the chief executive or at the council table.

6.12
In many instances, we close an issue by obtaining the appropriate information from the organisations concerned without having to do a major or significant inquiry, or we pass the information on to our appointed auditor of the local authority for consideration and any appropriate action during the annual financial audit. For some issues, we carry out a more substantive inquiry.

6.13
In 2015/16, there were slightly more than 100 new requests for us to look into local government issues. In the same period, we received about 60 requests for us to look into central government issues.

6.14
In 2015/16, the types of local government issues we looked into to determine whether we would make a formal inquiry included:

  • behaviour and decisions of local government staff and of elected members;
  • conflicts of interest of local government staff and of elected members;
  • economic development initiatives;
  • procurement and contract management; and
  • various aspects of financial management.

6.15
Several concerns raised with us related to decisions made by local authorities. Decisions made by elected members – for example, a council resolution – are referred to as policy decisions. We cannot change these. Our role is limited to looking at local authorities' implementation of those decisions and how those decisions are made, not the content of the decision.

Issues that we are continuing to monitor

6.16
We received several requests to inquire into two projects during 2015/16 that we are continuing to monitor. These are Whanganui District Council's wastewater treatment plant development and the Ruataniwha Water Storage Scheme development in Hawke's Bay.

Whanganui District Council – wastewater treatment plant development

6.17
The construction of wastewater and water supply treatment plants are often the most complex and costly projects commissioned by local authorities. For the last 12 years, Whanganui District Council has had issues with procuring and constructing a wastewater treatment plant.

6.18
The plant that was originally commissioned did not function properly and could not comply with the resource consent conditions it was meant to operate to. It ceased to operate in 2013. Closing this plant and proceeding with plans for a replacement have resulted in considerable costs and uncertainties for Whanganui residents.

6.19
We received several requests last year to inquire into this project, including to look into decision-making, management, and engineering advice. Some of these matters are not part of our mandate and are not matters we could inquire into. For example, we are not well placed to judge Whanganui District Council's chosen design. As well as our normal annual audit engagements, we have discussed the situation and its future plans with Whanganui District Council.

6.20
In recognition of the importance and interest in the project, Whanganui District Council amended its 2015-25 long-term plan to detail its plans and consult with ratepayers. Our audit opinion on the long-term plan drew attention to uncertainties about the cost of the proposed wastewater treatment plant and its use by trade users.

6.21
Our expectations are that Whanganui District Council will:

  • have independent quality assurance over the project;
  • maintain good contract management, strong project management, and good governance over the project; and
  • provide clear and transparent reporting on the project's progress.

6.22
We have communicated our expectations to Whanganui District Council.

6.23
Our appointed auditor will continue to monitor Whanganui District Council's progress with the new wastewater treatment plant – in particular, how the management and governance of the project aligns with our expectations.

Ruataniwha Dam – Hawke's Bay

6.24
Throughout 2016, we regularly considered matters involving the Ruataniwha Water Storage Scheme (the Scheme), which is being developed by Hawke's Bay Regional Council. Our involvement included our annual audit work, auditing a proposed amendment to the long-term plan, and our role under the Local Authorities (Members' Interests) Act 1968 in relation to the financial interests of councillors. We also responded to several complaints and requests to inquire into the Scheme.

6.25
The Scheme is to build a dam at the upper Makaroro River in Central Hawke's Bay to create a reservoir for irrigation and to provide water for "environmental flows" or flushing flows within the river system. Water for irrigation would be delivered primarily through existing natural riverbeds.

6.26
Hawke's Bay Regional Council proposes to invest up to $80 million in the Scheme. At the time of writing, Hawke's Bay Regional Council had resolved to place a moratorium on the proposal's progress until it received further advice on the wider Scheme.

Annual audit and long-term plan matters

6.27
In early 2016, Hawke's Bay Regional Council proposed purchasing an additional22 4 million m3 of water from the Scheme from 2026/27 and for the next 25 years for "flushing" additional water flows to waterways to reduce pollution and enhance ecosystems, at a cost of about $37 million.

6.28
Hawke's Bay Regional Council initially considered that it did not need to consult its community or amend its long-term plan for the proposal. It asked us for our view. At the same time, four regional councillors complained to us about this decision.

6.29
We suggested that Hawke's Bay Regional Council might need to amend its long-term plan because the activity of purchasing water for environmental reasons was not in its financial strategy. Hawke's Bay Regional Council reconsidered its decision and decided to consult and proposed to amend its long-term plan. We audited the consultation document for the amendment.

6.30
After hearing submissions on the proposed amendment, Hawke's Bay Regional Council decided not to amend its long-term plan and to consider more detailed options for using the additional water in the first instance.

6.31
Hawke's Bay Regional Investment Company Limited, a council-controlled trading organisation of Hawke's Bay Regional Council, led the development of the Scheme for Hawke's Bay Regional Council, including accessing land and signing-up water users.

6.32
The site for the Scheme's reservoir was proposed to include land managed by the Department of Conservation in Ruahine Forest Park, which the Department of Conservation agreed to swap for private land. Forest & Bird unsuccessfully challenged this decision in judicial review proceedings in the High Court but succeeded in the Court of Appeal in August 2016. At the time of writing, this decision was the subject of an appeal to the Supreme Court by the Department of Conservation.

6.33
Hawke's Bay Regional Investment Company Limited shows an asset in its financial statements for the costs to date on developing the scheme. Because the Ruahine Forest Park land was integral to the Scheme, the Court of Appeal decision created uncertainty about whether the land could be obtained and so whether the value of the asset recognised in the financial statements was correct.

6.34
Because we were unable to obtain enough evidence that it was probable that the land required would be obtained, we were unable to determine whether the costs incurred to date had ongoing value and, if so, how much value. As a result, we issued a qualified audit opinion on the financial statements of both Hawke's Bay Regional Investment Company Limited and Hawke's Bay Regional Council. Appendix 2 sets out further details about these audit opinions.

Central Hawke's Bay District Council

6.35
In its 2015-25 consultation document for its long-term plan, Central Hawke's Bay District Council told its community that it would consult on any proposal to purchase water from the Scheme to supplement its town supplies.

6.36
In late 2015, Central Hawke's Bay District Council conditionally agreed to purchase water from the Scheme to supply four areas in the district, subject to due diligence and public consultation. In April 2016, Central Hawke's Bay District Council reconsidered the matter and decided to enter into water-user agreements to help manage water supply and water quality issues for two areas rather than to supply water to all four. Central Hawke's Bay District Council decided it did not need to consult on the modified proposal because of its smaller scale.

6.37
We received complaints that Central Hawke's Bay District Council had not consulted with the community on this proposal nor amended its long-term plan to give effect to the proposal, despite the previous commitment to do so. We considered these issues as part of the annual audit, including whether the Act required Central Hawke's Bay District Council to consult on changing its water-supply arrangements for two areas of the district.

6.38
We told Central Hawke's Bay District Council that we considered that its approach involved some legal risk. Central Hawke's Bay District Council has since told us that it has decided to formally consult with its community on the proposal.

Conflict of interest matters

6.39
Some councillors at Central Hawke's Bay District Council and Hawke's Bay Regional Council own land in the area proposed to be irrigated by the Scheme. This means that some of these councillors potentially have financial interests in decisions to be made by the Councils about the Scheme, because the value of their land might increase if the Scheme proceeds or because they might intend to purchase water from the Scheme in the future.23

6.40
During the year, we received several complaints from members of the public and requests for us to inquire into whether councillors had breached the Local Authorities (Members' Interests) Act 1968, which regulates financial interests of elected members.

6.41
We considered whether several elected members of Central Hawke's Bay District Council had breached the Local Authorities (Members' Interests) Act 1968 by participating in discussing and voting on Central Hawke's Bay District Council's November 2015 conditional decision to purchase water from the Scheme. We determined that, because the decision was conditional, subject to consultation, and subject to further due diligence, they had not breached the Local Authorities (Members' Interests) Act 1968.

6.42
We received complaints about conflicts of interest focusing on an elected member of Hawke's Bay Regional Council, Councillor Deborah Hewitt. During 2015/16, another area of land for potential irrigation – known as "Zone N" – was added to the Scheme. As a result, a property owned by Councillor Hewitt's family trust came within the Scheme's boundaries.

6.43
Councillor Hewitt sought a declaration from us to enable her to participate in decisions that Hawke's Bay Regional Council proposed to make about the Scheme. We formed the view that, on balance, she was likely to have a pecuniary interest in Hawke's Bay Regional Council's decisions about the Scheme because the value of land owned by her family trust could be affected by these decisions.

6.44
We granted her a declaration because we considered that the benefits of allowing her to participate outweighed the risk that her pecuniary interest could be seen to unduly influence the outcome.24

6.45
In reaching our view, we were particularly influenced by the significance of the decisions to Hawke's Bay Regional Council and the region, which in our view warranted all councillors being able to participate in the discussion and vote on decisions.

Other matters

6.46
As well as audit and conflict concerns, we received several complaints asking us to inquire into the Scheme or intervene in the decision-making process. Several of these complaints questioned the rationale for the Scheme and its related proposals, and brought up matters of legal compliance.

6.47
We received complaints about Hawke's Bay Regional Council's decision in early 2016 not to consult on its proposal to purchase water at a fixed price for future "environmental flows", including from four Hawke's Bay Regional Councillors concerned about the consultation question and the information relied on for the proposal.

6.48
Because Hawke's Bay Regional Council consulted on, and did not proceed with, the proposal, we did not inquire further into those matters. It is not within our mandate to comment on the relative merits of the Scheme.

6.49
We recognise the high level of interest in the Scheme. We will continue to monitor its progress alongside our usual audit engagements with the local authorities involved.


22: The purchase of this water was in addition to the 4 million m3 of water that the Scheme must provide at no cost to Hawke's Bay Regional Council for flushing flows as part of its resource consent conditions.

23: One district councillor had entered into a water-user agreement to purchase water from the Scheme in the future.

24: See www.oag.govt.nz/media/2016/hewitt.

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Report details

CoverLocal government: Results of the 2015/16 audits

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