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Tuesday
Mar222016

2014/2015 Audit Report

I have taken the trouble to review the papers that were presented to the 7 March Audit Committee meeting.

There are a number of reports that relate to the above Audit. What is apparent is a high level of exasperation on the part of Audit New Zealand regarding the failure of our Council to comply with previous recommendations, in particular in regard to deferred and 'carry-over' expenditure - not just year on year, but over several years amounting to several million dollars. This is of course the result of manipulation of planning and expenditure to fit the needs of the incumbent Mayor and councillors to ensure that rates were  kept at an acceptably low level while capital, renewals and maintenance expenditure is manipulated at artificially low levels, regardless of Long Term or Annual Plans.

I drew attention to this tendency in the first year of the current Council in 2011 as the determination of members to keep faith with election promises became evident. But in keeping with the same tendency evident elsewhere, this move eventually drew the attention of the Auditor General who while not getting uncomfortably agitated, nevertheless drew attention to the conflict with the requirements of the LGA in perpetrating this illusional activity.

While rates remained under control, extraneous and wasteful non-core activity was able to be engaged in, covered by the savings made possible through postponed capital, renewal and maintenance activity. The most egregious example at the time being that related to stormwater. Highly qualified staff departed as a result.

The interim report of the Auditor General presented on 7 March contained the following comments - extrapolated to remove some of the more irrelevant content:

"We have completed the interim audit visits of Thames-Coromandel District Council (the District Council) for the year ended 30 June 2015.

The primary purpose of our visits were to update our understanding of the District Council's control environment and gain on understanding of the issues facing the District Council and how these are being addressed. We also reviewed the internal control systems and identified key controls that could be relied on for audit purposes.

We identified a number of areas where improvements could be made to various aspects of the control environment. The suggestions are included in the body of this report.

There remain a number of weaknesses in the expenditure system in the 2014/15 year. Consistent with our findings in the prior year, we are unable to rely on expenditure controls for audit purposes and will again substantively confirm expenditure during our final audit visit.

We are aware that a new Electronic Purchase Order system was implemented in July 2015. This system aims to address the identified control weaknesses in future years.

Overall we found that adequate internal controls exist in most areas and operate as described.

Planning and budgeting

In prior years we have reported that planning and budgeting processes at the District Council could be improved. We have also been concerned at the significant amount of capitol expenditure that is not completed, or in many cases not started, in the year it is budgeted tc• occur. These projects are then carried forward into the following year.

We are aware the District Council has been taking steps in the lost two years to reduce the scale of incomplete projects that are carried forward each year. Despite this, understand that $7m of capital expenditure planned for the 2014/15 year will be carried forward into 2015/1 6 year.

Consistent with prior years, we note that the monthly reports presented to Council and the Audit Committee still have variance explanations at a high level and do not always provide adequate explanations for significant movements. In some areas, reasons for movements compared to budget are provided. In other areas, it is only stated that a revenue or expenditure item is over/under budget. Given that this is the main form of variance reporting it is essential that the cause of the variance is explained, as opposed to reporting the category of the variance.

As part of our audit of the budgeting processes, we also selected a number of capital projects from the 2014/15 Annual Plan to review. We initially experienced difficulty in obtaining supporting documentation to support the budgeted costs for some of these projects. Supporting documentation should be retained and readily available for review. Appropriate documentation would provide evidence that budgeted costs are reasonable and based on up to date information. It would also form a reliable basis to help explain variances for actual performance against  budget.

As a result, we could not obtain sufficient evidence to show how the $1.2m budgeted figure in the 2014/15 Annual Plan was determined. It also appears that the project was carried forward for a number of years without any progress being made. We understand the project was re-scoped for the 2015/25 Long Term Plan. The timing of any decisions about this project meant that changes were not incorporated into the 2014/15 Annual Plan.

Recommendation

We recommend the District Council continues to review and improve the capital budget setting processes. Capital projects that ,:ire carried forward from previous years be reviewed to Etnsure that the project is still feasible and the budgets are based on the most up to date information.

With help from Finance staff, other staff were subsequently able to provide some supporting documentation to us.

One of the capital projects that we had selected was the Tairua Mary Beach wharf and boat ramp improvements project, budgeted at $1.2m in the Annual Plan. Initial supporting documentation obtained showed that the estimates for this project dated back to  1995.

In 2012/2013, an external feasibility report estimated the costs for this project at $4m. We understand the project was then referred back to staff for redesign so that it would fit within the $1.24m 2012/22 Long Term Plan estimate. The project was subsequently deferred."

Read between the lines to understand the diplomatic phraseology that represents a sharp 'rap over the knuckles.' In other words, they better get their house in order pretty dammed soon. The Management Responses to all the adverse comments of the AG were repetitive and soothing, but totally unconvincing that anything will be done to overcome the repeated, if muted criticism.

Attempts are always made in Election year to keep a lid on audit criticism, and so it will be interesting to observe how these matters are reported to the full Council on 6 April - it will be quite difficult I imagive to justify a $7m "carry-over" (9% of the total budget!) of capital expendure.

Just another 'Leach legacy' that will need to be balanced with his claimed 'successes' over the last six years.

 

 


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Reader Comments (1)

Hi Bill, I worked with Andrew in Auckland so it is not correct to say his whole working life is in Wellington
regards Dennis

March 22, 2016 | Unregistered CommenterDennis Hodgson

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