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Audit and Risk Committee
17 September 2024
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2024-2034
LTP process report - report to the council from the Office of the
Auditor-General
File No.: CP2024/12951
Te take mō te
pūrongo
Purpose of the report
1. To
note the matters identified by the Office of the Auditor-General (the OAG)
during the recent audit of the Long-term Plan 2024-2034 (LTP) and how Auckland
Council is addressing these.
Whakarāpopototanga matua
Executive summary
2. The
OAG issued an unmodified audit opinion on the LTP on 27 June 2024.
3. They
have now issued a report (Attachment A) to the council that summarises the
audit opinion and the matters emphasised within it. The report also includes
recommendations for improving the process and content of the next LTP, and some
areas of immaterial difference of opinion with the council.
4. The
recommendations focus on the following areas:
· Project
delivery and the control environment for the development of the LTP
· Financial
Strategy and Infrastructure Strategy
· Quality
of asset-related forecasting information
· Forecast
service performance information.
5. The
council has considered these recommendations and provided a response to each
which has been included in the relevant parts of the OAG report.
Ngā tūtohunga
Recommendation/s
That the Audit and Risk
Committee:
a) tuhi ā-taipitopito / note the
matters identified by the Office of the Auditor-General with respect to the
Long-term Plan 2024-2034 and the council’s responses to these matters.
Horopaki
Context
6. Auckland
Council adopted its LTP on 27 June 2024. The OAG issued an unmodified audit
opinion on the LTP on the same day.
7. The
OAG has now issued a report to the council that summarises the audit opinion
and the matters emphasised within it. It also includes recommendations for
improving the process and content of the next LTP.
Tātaritanga me ngā
tohutohu
Analysis and advice
LTP Audit Opinion
8. The
unmodified opinion issued meant that the OAG were satisfied that:
· the
LTP provides for long-term, integrated decision-making and co-ordination of the
council’s resources; and provides a reasonable basis for accountability
of the council to the community
· the
information and assumptions underlying the forecast information in the LTP are
reasonable
· the
disclosures included in the LTP represent a complete list of the disclosures
required by Part 2 of the Local Government (Financial Reporting and Prudence)
Regulations 2014 (the Regulations) and accurately reflect the information drawn
from the LTP.
9. In
forming their opinion, the OAG included “emphasis of matter”
paragraphs in the audit report highlighting the uncertainties relating to
certain significant assumptions. These are designed to draw the reader’s
attention to disclosures made in relation to those assumptions. The matters
included in this opinion were:
· uncertainty
over the returns on the Auckland Future Fund
· uncertainty
over storm recovery funding arrangements
· uncertainty
over costs related to the City Rail Link project
· uncertainty
over the impact of the Local Government (Water Services Preliminary
Arrangements) Bill.
Recommendations for
improvement
10. The report
now issued to the council by the OAG included a number of recommendations for
improvement to both the process and content of future LTPs.
11. The
recommendations made by the OAG include:
· Project
delivery
· Financial
model
· Infrastructure
strategy
· Quality
of asset-related forecasting information
· Forecast
service performance information
o Measures
relating to the perceptions of communities and/or service users
o Resource
consent monitoring
o Measures
for activities delivered by council-controlled organisations
· Allocated
funding in local boards
· Inflators
used in the PPE revaluation model.
12. The council
has considered each of the recommendations and provided a response for each to
the OAG. These management comments are included in the relevant parts of the
OAG report.
Differences of opinion
13. The report
also included two areas where there were differences of opinion between the OAG
and the council (referred to as “uncorrected misstatements”).
Neither of these issues was seen as material to the quality of the LTP.
14. The first
issue related to the immediate provision for the expected cost of removal or
deconstruction of houses on properties subject to Category 3 buyouts. While the
OAG agreed that the council had an immediate obligation to purchase Category 3
houses (and provide for the expected difference between the buyout costs and
future value of the land), it did not believe that the cost of demolishing the
houses should be recognised as a liability.
15. The council
does not agree with this view as it believes it has an obligation to make the
properties safe, once purchased, through removal or deconstruction of houses.
Therefore, the LTP was prepared on this basis with the full liability
recognised immediately.
16. The second
issue related to the forecast depreciation of City Rail Link (CRL) assets. The
council estimated the value of assets that might be received by the group on
completion of the CRL project and assumed that the average useful life of these
assets would be 30 years. Auckland Transport advised that the useful life may
be 60-70 years, this could mean that the depreciation estimates are around $50
million per annum too high.
17. Due to the
level of uncertainty in relation to all the future operating costs associated
with the CRL, the LTP has maintained the conservative assumption of 30 years.
The council will continue to review this assumption (alongside other related
information) through future budget processes.
Tauākī whakaaweawe
āhuarangi
Climate impact statement
18. The impact of
climate change and the council’s response is a key matter in the LTP. One
of the matters emphasised in the audit opinion was the uncertainty over funding
arrangements related to the council’s storm recovery programme. This is
directly related to our response to the increased risks of severe weather
events as a result of climate change.
Ngā whakaaweawe me
ngā tirohanga a te rōpū Kaunihera
Council group impacts and views
19. The LTP was
prepared on a group basis. The audit opinion and recommendations for
improvement apply to process and content from across the group.
Ngā whakaaweawe
ā-rohe me ngā tirohanga a te poari ā-rohe
Local impacts and local board views
20. The LTP
includes plans and budgets governed by local boards and the opinion and
recommendations apply to this content.
Tauākī whakaaweawe
Māori
Māori impact statement
21. The LTP
includes the Auckland Council group’s contribution towards Māori
outcomes. None of the matters emphasised or recommendations particularly relate
to this content.
Ngā ritenga
ā-pūtea
Financial implications
22. The LTP
includes full financial forecasts for the period from 1 July 2024 to 30 June
2034. It also includes the Infrastructure Strategy which has additional
investment projections to 2054.
23. The
reasonableness of this financial information, and the underlying assumptions,
is a key component of the audit opinion. The matters emphasised are done so to
bring the reader’s attention to uncertainty around these assumptions.
24. The
recommendations include areas for continuous improvement around financial
modelling and forecasting.
25. The areas
where there were differences of opinion had financial implications but these
were assessed to be immaterial in the context of the LTP.
Ngā raru tūpono me
ngā whakamaurutanga
Risks and mitigations
26. Key risks and
mitigations associated with the LTP were reported to this committee throughout
the process.
Ngā koringa ā-muri
Next steps
27. Council staff
are actively addressing the matters raised by the OAG.
Ngā tāpirihanga
Attachments
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No.
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Title
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Page
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a⇩
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Report to the Council on the audit of Auckland Council
Group's long-term plan 2024-2034
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17
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Ngā kaihaina
Signatories
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Author
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Michael Burns - General Manager Financial Strategy
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Authorisers
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Ross Tucker - Group Chief Financial Officer
Meredith Webb - Chief Risk and Assurance Officer
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Audit and Risk Committee
17 September 2024
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Preparation
of Auckland Council Group's draft annual report 2023/2024 and draft summary
annual report 2023/2024
File No.: CP2024/13063
Te take mō te
pūrongo
Purpose of the report
1. To
note the process followed to prepare the draft Auckland Council Annual Report
2023/2024 and the draft Auckland Council Summary Annual Report 2023/2024
(together referred to as the annual reports).
Whakarāpopototanga matua
Executive summary
2. On
26 September 2024, the Governing Body will be asked to adopt the annual
reports. Preparing and publishing these annual reports is a legislative
requirement and ensures that we are transparent about our operations with
investors and ratepayers.
3. The
annual reports cover the 12 months to 30 June 2024. They have been prepared by
council staff and audited by Audit New Zealand on behalf of the
Auditor-General. The annual reports compare and comment on the performance of
the Auckland Council group (the group) and Auckland Council (the council)
against the budgets and performance targets set in the 10-year Budget 2021-2031
(Our Recovery Budget) and the Annual Budget 2023/2024.
4. The
Deputy Auditor-General will attend this meeting to provide a confidential
report on the:
· audit
process
· draft representation
letter
· draft
proposed audit opinion, including commentary on the key audit matters
· status
of the annual reports.
5. At the time of writing this report, there were some outstanding process issues relating to the audit which we
expect to have resolved before the annual reports are approved by the Governing
Body.
Ngā tūtohunga
Recommendation/s
That the Audit and Risk
Committee:
a) tuhi
ā-taipitopito / note the process followed to prepare the draft Auckland Council Annual Report 2023/2024 and the
draft Auckland Council Summary Annual Report 2023/2024
b) tuhi
ā-taipitopito / note the draft Auckland Council Annual Report 2023/2024
and the draft Auckland Council Summary Annual Report 2023/2024 will be
discussed later in this meeting in confidence.
Horopaki
Context
6. The
Audit and Risk Committee reviews the quality of the annual reports and the
processes followed to prepare them.
7. The
Audit and Risk Committee liaises with Audit New Zealand to ensure a robust
audit of the group.
8. This
report, in conjunction with the associated confidential item and comments from
the Deputy Auditor-General at this meeting and his report, assists the Audit
and Risk Committee to fulfil its duty as noted above.
9. Audit
New Zealand will provide comment on any significant matters arising from the
audit that they intend to include in their final audit report to the Governing
Body following adoption of the annual reports.
Tātaritanga me ngā
tohutohu
Analysis and advice
10. The draft
reports referred to in the following sections will be provided under separate
cover to be discussed in the related confidential report on today’s
agenda. Volumes 1 to 4 of the Annual Report and the Summary Annual Report
contain information that is required by legislation and accounting standards.
11. Volumes 1 to
3 of the Annual Report and the Summary Annual Report are subject to audit.
Volume 4 is reviewed by Audit New Zealand as part of their review of
“other information” that accompanies the annual report, however,
they do not express an opinion on this volume.
Draft Annual Report 2023/2024 Volume
1: Overview and Service Performance
12. Volume 1
provides an overview of the financial and non-financial performance of the
group.
13. It reports on
the most material issues that the group faced during the year, and how the
group responded.
14. The
performance of each of Auckland Council’s groups of activities is
described, and performance is measured against financial and performance
measures set in Our Recovery Budget.
Draft Annual Report 2023/2024 Volume 2: Local Boards
15. Volume 2
comprises annual reports for each local board.
16. Each report
includes the local board’s service performance results and their funding
impact statements. Local board performance is measured against the planned
outcomes in Our Recovery Budget.
17. The draft
local board reports were presented to each local board for review. Their
feedback has been incorporated where appropriate, and the reports have been
approved by the respective local board chairs.
Draft Annual Report 2023/2024 Volume
3: Financial Statements
18. Volume 3
includes the group and council’s statutory financial statements and the
group funding impact statement, all of which measure the group and the
council’s financial performance against the Annual Budget 2023/2024.
19. Also included
are the funding impact statements of the council’s groups of activities,
which measure financial performance against Our Recovery Budget for each group
of activities.
20. The financial
statements contain disclosures required by financial reporting standards, Local
Government (Financial Reporting and Prudence) Regulations 2014 and the Local
Government Act 2002.
21. The format
and accounting policies of the funding impact statements are prescribed by the
Local Government Act 2002.
22. The Audit and
Risk Committee approved the pro forma statutory
financial statements subject to any updates identified during the year-end
close and audit process at its meeting on 14 May 2024.
23. To ensure
completeness of disclosure, a financial statement disclosure checklist has been
completed and will be available for inspection during the confidential part of
this meeting.
Draft
Annual Report 2023/2024 Volume 4: Climate Statement
24. Volume 4 was
prepared by the virtual Climate Disclosure team which comprises finance and
sustainability staff. It is a summary of the group’s response to
climate-related risks and opportunities. It describes the group’s
governance of climate change risk, its risk management approach, how climate
risk is integrated into strategy and outlines the group’s climate change
metrics and targets.
25. The group has
been preparing a climate statement using the Taskforce for Climate-related
Financial Disclosures (TCFD) framework for several years.
26. On 14
December 2022, the External Board issued Aotearoa New Zealand Climate Standards
(climate standards). These climate standards are based on the TCFD framework
and are effective for reporting periods beginning on or after 1 January 2023.
They include:
· NZ
CS 1 Climate-related disclosures
· NZ
CS 2 Adoption of Aotearoa New Zealand Climate Standards
· NZ
CS 3 General Requirements for Climate-related Disclosures
27. In October
2023, the Financial Markets Authority (FMA) issued expectations of record
keeping in relation to climate reporting.
28. The current
year climate statement has been prepared using the climate standards, and
record keeping processes have been designed to achieve the FMA’s
principles on record keeping.
29. The Climate
Disclosure team engaged EY to gain assurance over compliance with the climate
standards and the FMA’s record keeping guidance. EY provided:
· insights
over the quality of our draft Climate Statement
· findings
on the level of alignment between our Climate Statement and the information and
presentation principles outlined in Aotearoa New Zealand Climate Standard 3
· findings
as to the extent to which our record keeping processes uphold the principles in
the FMA’s record keeping guidance.
30. All
EY’s recommendations have been addressed where possible, with a few minor
points added to the 2024/2025 work programme (e.g. security and archiving
controls over evidence and record keeping process documentation).
31. Mayne
Wetherell also reviewed the Climate Statement as part of their annual legal
review, however, with a focus on detailed compliance with the climate
standards. All matters have been addressed and legal sign-off has been
received.
32. The Audit and
Risk Committee approved the pro forma climate statement subject to any updates
identified during the year-end close at its meeting on 14 May 2024.
33. Management
continues to acknowledge that as the group’s understanding of and
responses to climate change mature, so will the disclosure.
Draft Summary Annual Report 2023/2024
34. The draft
Auckland Council Summary Annual Report 2023/2024 is an abridged version of the
first three annual report volumes and provides highlights, performance
information and information about the group including governance, community
engagement and the group’s commitment to sustainability.
Tauākī whakaaweawe
āhuarangi
Climate impact statement
35. This
committee paper relates to financial and non-financial statutory reporting. No
decision is sought in this paper that has a direct impact on the group’s
greenhouse gas emissions nor the group’s approach to preparing for
climate change.
36. However, it
is acknowledged that the activities undertaken by the group and reported on
within the annual report have the potential to be impacted by climate change
and can also reinforce or weaken our climate action response.
37. Climate risk
disclosures included in Volume 4 play a key role in how external organisations
direct capital flow towards climate positive solutions and investments.
Reporting of the group’s response to climate change risk holds the group
publicly accountable, and ensures the business maintains their focus on
addressing climate change risk at all levels across the group.
Ngā whakaaweawe me
ngā tirohanga a te rōpū Kaunihera
Council group impacts and views
38. The annual
reports reflect the results of the group for the year ended 30 June 2024. The
council-controlled organisations are involved in the preparation of this
information. No decision is sought that would directly impact the group.
Ngā whakaaweawe
ā-rohe me ngā tirohanga a te poari ā-rohe
Local impacts and local board views
39. Volume 2 of
the annual report includes a section featuring the achievements in each local
board area. Local boards were engaged to collect and review this information
and each local board chair has prepared a message which is included in their
respective report. No decision is sought that would impact local boards.
Tauākī whakaaweawe
Māori
Māori impact statement
40. The annual
reports cover all aspects of the group’s governance and public
accountability. Although the annual reports include commentary on the
group’s contribution to outcomes for Māori, as well as the role of
Houkura - Independent Māori Statutory Board and the council’s
Ngā Mātārae – Māori Outcomes department, no decision
is sought in this paper that has a direct impact on Māori.
Ngā ritenga
ā-pūtea
Financial implications
41. There are no
financial implications directly arising from the information contained in the
report as no financial decision is sought.
Ngā raru tūpono me
ngā whakamaurutanga
Risks and mitigations
Risk of error, omission or non-compliance in preparation of the
annual report and summary annual report
42. There
is a risk that errors or non-compliance with legislation and accounting
standards could occur in the preparation of the annual reports. To mitigate
this risk, quality assurance reviews were performed on the consolidated results and commentary and the year-end reports. The reviews
focused on accuracy, completeness and reasonableness of disclosures, legislative compliance and
adherence to the council’s communications standards.
43. There
is also a risk that the annual reports present a biased view of the performance
of the group. Two trust lens reviewers were used to review the annual reports
to ensure that we are telling a fair and balanced story, that good news stories
are truthful and accurate and the poor performance stories are honest and
transparent. They review the overall story for consistency through all volumes.
Compliance
reviews
44. Auckland
Council’s Legal Services department reviews the summary annual report and
volumes 1-3 of the annual report for compliance with local government
legislation.
45. Staff
who are not directly involved in the overall preparation of volume 4 review it for compliance with the climate standards.
46. Mayne
Wetherell also reviews Volume 1 to 4 for compliance with NZX listing rules, the
Financial Reporting Act 2013, the Financial Markets Conduct Act 2013 and the
climate standards.
Reviews
of accuracy, completeness and fairness
47. Several
reviews of the annual reports take place by people with differing levels and
areas of involvement in financial reporting. A summary of the reviews is as
follows:
|
Reviewer
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Volume 1
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Volume 2
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Volume 3
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Volume 4
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Summary Annual Report
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Group chief financial officer
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ü
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ü
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ü
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ü
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ü
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Group treasurer
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ü
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ü
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ü
|
ü
|
ü
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General manager financial strategy
|
ü
|
ü
|
ü
|
|
ü
|
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General manager financial advisory
|
ü
|
ü
|
ü
|
|
ü
|
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Group financial controller
|
ü
|
ü
|
ü
|
ü
|
ü
|
|
Manager group performance reporting
|
ü
|
ü
|
|
|
ü
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External stakeholder group reporting manager
|
|
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ü
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ü
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ü
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Manager financial stakeholder relations
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ü
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ü
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|
ü
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Senior group reporting technical accountant
|
|
|
ü
|
|
ü
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Financial accounting manager
|
|
|
ü
|
|
ü
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Trust lens reviewer
|
ü
|
ü
|
ü
|
ü
|
ü
|
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Legal services
|
ü
|
ü
|
ü
|
ü
|
ü
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Chief Sustainability Office
|
|
|
|
ü
|
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Mayne Wetherell
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ü
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ü
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ü
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ü
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ü
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48. In addition
to these reviews, the council’s Financial Control
team completes a detailed reporting checklist to ensure all financial reporting
and disclosure requirements have been met. The
group financial controller will have an annual report
checklist and sign-off document available at this meeting, providing assurance
that reporting and disclosure requirements have been complied with.
49. The
two trust lens reviewers were not within the council’s finance division
and were not involved in the preparation of the annual reports.
50. All
the technical quality assurance reviewers who perform reviews from a financial perspective are Chartered Accountant qualified or equivalent and
have the appropriate
technical accounting skills and knowledge.
Disclosures from council-controlled organisations, City
Rail Link Limited and Port of Auckland Limited
51. There
is a risk that significant matters that affect the financial performance,
financial position or cash flows of council-controlled organisations, City Rail
Link Limited or Port of Auckland Limited may not be adequately disclosed.
52. To mitigate
this risk, each substantive council-controlled organisation, City Rail Link
Limited and Port of Auckland Limited provide an audited financial reporting
pack, based on a standardised pack issued by the council’s Financial
Control team. This audited financial information is consolidated to form the
group’s financial statements.
53. The
group financial controller obtains short and long-form representation letters
from the respective chief financial officers (CFOs)/chief executives and/or
audit committee chairs/boards which cover the completeness, accuracy and
adequacy of disclosures provided in their financial reporting packs. In
addition, the group financial controller will obtain updates from the
respective CFOs/delegate just prior to the Governing Body meeting at which the
annual reports are adopted. This is to ensure nothing else has arisen since the
representation letters were signed that could materially affect their financial
reporting disclosures.
Delay in Audit New Zealand’s final clearance
54. There is a risk of delay in Audit New Zealand’s final
clearance due to unresolved technical matters.
55. The
Financial Control team has been working with Audit New Zealand to address
technical issues early, however there is a risk that matters could arise that
cannot be cleared by Audit New Zealand until
they have audited the relevant information.
Ngā koringa ā-muri
Next steps
56. The Audit and
Risk Committee will discuss the annual reports in confidence with staff and the
Deputy Auditor-General and Audit New Zealand, after which it will recommend the
annual reports’ adoption to the Governing Body. The committee will then
have completed its responsibilities for the annual reports.
Ngā tāpirihanga
Attachments
There are no attachments for
this report.
Ngā kaihaina
Signatories
|
Authors
|
Yvonne Teo - Financial Accounting Manager
Tracy Gers - External Stakeholder Group Reporting
Manager
Francis Caetano - Group Financial Controller
|
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Authorisers
|
John Bishop - Group Treasurer
Ross Tucker - Group Chief Financial Officer
Meredith Webb - Chief Risk and Assurance Officer
|
