Project update 1, December 2007

Auditing the Future: 2009
Contents
A word from Kevin Brady
Key messages
What the sector has been doing
What the Office has been doing
Auditors' planning to audit

The Auditing the Future project was established to work with local government to put in place the resources, standards, and know-how to successfully and credibly audit Long-Term Council Community Plans (LTCCPs) from 2006 onwards. The project also aims to share and promote good practice in long-term planning.

A word from Kevin Brady, Controller and Auditor-General

Kevin Brady

In the middle of dealing with many other commitments, such as ratepayer enquiries around local authority elections, contributing to the training of newly elected members delivered by Local Government New Zealand (LGNZ), and helping with LTCCP training delivered by the Society of Local Government Managers (SOLGM), the Office is getting ready for the next round of LTCCPs in 2009. As you are all also doing, no doubt!

Throughout 2007, my staff have been debriefing and reviewing the 2006-16 LTCCP process and methodology. I am also aware that many of you have also begun your preparations by looking at what worked well last time, and identifying what needs to be improved for the next LTCCP. I am encouraged by this and appreciate that a number of you have already met with my auditors to begin planning and working towards a smooth planning and auditing process.

We expect that our revised methodology will be finally approved early in 2008, which will enable early training of our auditors. We have been discussing our general approach at recent sector conferences. The purpose of this newsletter is to outline some of that detail.

As we did for the 2006-16 LTCCP, we intend to provide newsletters every couple of months to keep the sector informed and up to date with our thinking and preparation. This newsletter provides the first update for the 2009-19 LTCCP. I look forward to working with you all in this important task of preparing for the future.

Kevin Brady

Key messages

Managing the process

Project management will be important when building the 2009-19 LTCCP – starting from the development of a plan to plan and gaining commitment within the local authority – both within the organisation and from top to bottom, starting with the Council. We suggest you allow time in your project planning for the audit, including the OAG-based hot reviews. Our goal is to support the auditor and the sector by using the hot reviews to promote a consistent approach throughout the sector. While this will require some additional time, the sector generally appreciates that the hot review process provides a useful level of assurance of consistency in approach and audit opinions.

“Auditing as you go”

We are aware that many local authorities and auditors want to have an “auditing as they go” approach. This is consistent with the approach in the audit methodology, which places considerable emphasis on planning the approach to and audit of the 2009-19 LTCCP.

The “auditing as you go” approach will depend on good project management and good communication. We are preparing to complete our audit planning for the 2009-19 LTCCP by mid 2008, and could enable auditing some parts of the LTCCP Statement of Proposal (for example, asset management plans) after completion of the 2007/08 annual report audits in October/November 2008. Auditors will be auditing your LTCCP Statement of Proposal document from February to June 2009, but could start earlier if material is ready for auditing.

Good practice

The LTCCP articulates a local authority's strategy (informed by both community desires and the reality of the community's circumstances) and also provides an integrated view of the policies and actions required to support the strategy.

Good practice has been defined by the sector through the preparation of guidance material developed by sector organisations. Much of our revision work has been to refine our approach based on the experience of the 2006-16 LTCCP and aligning our approach to the SOLGM material (Towards 2009 initiative) and National Asset Management Steering Group (NAMs) guidance. This material and guidance has set the benchmark for good practice in 2009-19. The audit methodology takes these sector-developed standards as the basis for the audit.

Audit approach

The audit methodology has two main parts – one is the preparation and planning for the audit, expected to occur in mid-2008. Some of this is work the auditor will do, and some will be work that is best done by the local authority. For example, we intend to have some information for the audit planning provided by self-assessment, as was done last time. This self-assessment will be used by the auditor to assist them to become familiar with the local authority if they are not already, but primarily will help the auditor to identify risks for the audit. This first part of the audit preparation is largely focused on the systems and practices used by the local authority, which underlie what goes into an LTCCP – such as governance, decision-making processes, consultation, engagement with Maori, preparation of asset and activity plans, clarity of financial strategy, and how you develop and use performance frameworks.

Audit emphasis

The second part of the audit preparation is the audit of the LTCCP Statement of Proposal document. We are planning to have 10 modules for your auditor to work through with you – these are outlined later in the newsletter, and more detailed information will be coming to you in next year's newsletters.

Our audit methodology for the 2009-19 LTCCP includes an emphasis on:

  • how local authorities have implemented the principle to take a sustainable development approach (s14(1)(h));
  • clear information to the public about key issues, choices, and implications (s 93(6));
  • transparency about financial management strategies and prudence (s101(1));
  • performance frameworks and measures to assess how much they contribute to a meaningful assessment of performance (schedule 10 Cl 2(2)(a)); and
  • the provision of adequate underlying information (s94(1)(b)).

Getting started: what the sector has been doing

Reviewing progress

Many local authorities have reviewed their 2006-16 LTCCP processes, started project planning for the 2009-19 LTCCP, and established LTCCP project teams. Some local authorities have initiated discussions with their auditor, which all parties have found useful.

While there is a clear expectation that the Office will conduct audits on a systems and “early as possible” basis, the sector also acknowledges that it needs to sequentially plan for and develop information in order to be ready for the audit processes (for example, to have asset information completed by October 2008).

Determining the size of the project

A critical consideration is to “size” the task of preparing the 2009-19 LTCCP. Councils have been asking questions such as: will it be substantially a new document or an incremental change?

Other questions being asked are:

What will be the nature of the changes to the existing direction? An early discussion with the (new) Council as to their policy parameters will be critical in determining this.

What has another two to three years told us about the well-being of our communities, or about the state of our infrastructure?

What were the results of the 2006-16 LTCCP planning process? For instance, are there areas of underlying information that need development? (This could be underlying information for assets, or could be an overhaul/augmentation of assumptions or a more robust performance framework.)

Setting the standards

SOLGM and NAMs have prepared a number of good practice guides which set the standards for the sector. Our audit methodology is aligned with this guidance. The SOLGM 2009 and beyond suite of guidance material is listed below:

  • Living through the LTCCP – planning to plan; project management, managing the process.
  • Piecing it Together – preparing an LTCCP.
  • Your side of the Deal – guidance on developing a performance management framework.
  • Dollars and Sense – financial management.
  • Community outcomes – will be developed by February 2008.

Building capability

SOLGM has developed the training seminars Towards 2009 , which were delivered around the country in November. These were well-attended and the main messages from the sector were that:

  • project planning has started much earlier than in 2006,
  • a considerable number of new people were working on the 2009 LTCCP, and
  • the information developed by the sector through the SOLGM and NAMS processes was timely and welcome.

Getting started: what the Office has been doing

Reporting to Parliament and the sector

We provided a substantial report to Parliament called Matters arising from the 2006-16 Long-Term Council Community Plans, parliamentary paper B29[07c]. Despite the title, it's a good read, and also has commentary from four expert reviewers on sustainable development, performance information, asset management, and financial management and strategies.

Our report picked up a number of points that are now being discussed around the country:

  • 2006 LTCCPs are an improvement over 2004;
  • asset management planning has improved, but there is still a way to go;
  • progress is required in relation to the performance frameworks as there is currently a lack of linkage and flow; and
  • there is still some way to go for LTCCPs to be strategic and user-centric documents.

Provision of guidance to the sector

We have published guidance on decision-making and consultation Turning principles into action: A guide for local authorities on decision-making and consultation. This updates our previous guidance published in 1998, making it relevant under the Local Government Act 2002. Our guidance discusses the principles and requirements of the Act, and sets out the combined view of the Auditor-General and a sector working party on good practice within the sector. It provides examples of local authority practice in areas that were identified as challenges for local government to implement. It is available on our website www.oag.govt.nz or in hard copy from the OAG.

The OAG has been talking to the sector at events such as the Community Planners conference in September 2007, and the SOLGM/NAMs training seminars in November 2007.

Review of the audit methodology

We have reviewed the audit methodology and processes used for auditing the 2006-16 LTCCP. This review is informing our current development of the methodology. We have established a steering group of OAG staff and auditors, who are tasked with overseeing the project to get ready for the 2009-19 LTCCP audits. The development project is also drawing on other performance-management-related research and development work carried out by the Office since 2006.

We will be doing initial training with audit teams in March/April 2008.

Development of audit methodology

We expect that a draft audit methodology will be approved by our steering group in December 2007. The draft methodology will be trialled with auditors and sector representatives and tested before auditor training begins in mid-2008.

As required, the audit is based on the three “themes” of sections 84 and 94 of the Local Government Act 2002 (the Act):

Local Government Act 2002 sections 84(4) and 94

 

Audit “question”
Legislative compliance Have you done what the Act requires in respect of the plan?
Quality of underlying information and assumptions Do your underlying processes support robust and relevant information going into the LTCCP Statement of Proposal?
Performance information Will the performance information provide a meaningful assessment of the service provided to the community?

Our 2006-16 LTCCP methodology focused on 15 aspects. Based on this experience, we have revised the methodology so that is based on the three “themes” of the Act, which are then divided into 10 modules or “aspects” as follows:

Theme 1: Legislative compliance - does the LTCCP include:

  1. the right debate (are strategic and key issues clear);
  2. financial prudence;
  3. document compliance with legislative requirements;
  4. compliance with legislative requirements for decision-making and consultation;

Theme 2: Underlying information – does the LTCCP have quality:

  1. plans for activities (for physical and other assets);
  2. levels of service;
  3. integration and linkages;
  4. assumptions – not just financial ones;
  5. GAAP; and

Theme 3: Performance management – does the LTCCP have:

  1. a meaningful framework and information.

The audit will probably not be smaller. While greater familiarity with the process on all sides is expected to allow greater efficiency this time round, the audit will also be looking at some aspects in more depth than last time. This obviously has an effect on fees, which are currently being modelled for discussion by the steering group.

Auditors' planning to audit

Your auditor will aim to plan the audit around the first half of 2008, and the audit fieldwork will be carried out in the period from November 2008 through to adoption by June 2009. The planning phase will require interaction with your auditor, as well as provision of information through such mechanisms as the self-assessment discussion and preliminary system testing. “Auditing as you go”, as noted earlier, is a goal that local authorities and auditors have indicated is desirable, and our process is designed to facilitate this where possible.

The broad phases of the 2009-19 LTCCP audit are:

  • To 31 July 2008
    • Formal arrangements, fees set in place
    • Planning the audit, including the self-assessment
  • October 2008- February 2009
    • Audit as you go, where possible
  • To June 2009
    • Hot review of all LTCCPs for consistency
    • Delivery of two opinions

For more details contact Cathy Kenkel on (04) 917 1873 or Sarah Lineham on (04) 917 6096.

Page last updated: 20 December 2007

page top