Accountability and audit opinions

Asset management and long-term planning.

Audit opinions give confidence that readers can rely on the information in key documents. Audit opinions can draw attention to important aspects of documents or indicate areas where there is less confidence.

In the case of long-term planning, opinions covered two issues: whether planning was fit for purpose and the quality of the underlying information and assumptions.

In this chapter, we outline the different audit opinions that we issued and what our audit opinions mean.

Local Government Act 2002

Section 93(6) of the Act sets out the purpose of a LTP, which is to:

  • describe the activities of the local authority;
  • describe the community outcomes of the local authority’s district or region;
  • provide integrated decision-making and coordination of the resources of the local authority;
  • provide a long-term focus for the decisions and activities of the local authority; and
  • provide a basis for accountability of the local authority to the community.

Auditors report on the quality and reliability of these LTPs.

Types of audit opinion issued

Auditors can express four types of opinion:

Type of opinion Explanation
Unmodified
(consultation document)		 This is the opinion expressed when the Auditor-General concludes the consultation document:
  • provides an effective basis for public participation in the local authority’s decisions about the proposed content of its 2021-31 LTP, because it:
    • fairly represents the matters proposed for inclusion in the LTP; and
    • identifies and explains the main issues and choices facing the local authority and region, and the consequences of those choices; and
  • the information and assumptions underlying the information in the consultation document are reasonable.
Unmodified
(LTP)		 This is also the opinion expressed when the Auditor-General concludes the LTP:
  • provides a reasonable basis for:
    • long-term, integrated decisionmaking and co-ordination of the local authority’s resources; and
    • accountability of the local authority to the community;
  • the information and assumptions underlying the forecast information in the plan are reasonable; and
  • the disclosures included represent a complete list of the disclosures required by Part 2 of the Local Government (Financial Reporting and Prudence) Regulations 2014 and accurately reflect the information drawn from the plan.
This opinion does not provide assurance that the forecasts in the plan will be achieved, because events do not always occur as expected and variations may be material. Nor does it guarantee the accuracy of the information in the plan.
Modified Modified opinions can be qualified, adverse, or disclaimed. They are used when:
  • based on the audit evidence obtained, the requirements of an unmodified opinion have not been met (opinions can be either qualified or adverse depending on the pervasiveness of issues); or
  • we have been unable to obtain sufficient appropriate audit evidence to conclude that the basis for the unmodified opinions above have been met (again opinions can be either qualified or disclaimed depending on the pervasiveness of issues).
Emphasis of matter This is a paragraph included in the auditor’s report referring to a matter that, in the Auditor-General’s judgement, is of such importance that it is fundamental to users’ understanding of the consultation document or LTP. Matters can be emphasised by the Auditor-General even if they are already appropriately presented or disclosed by the local authority in the consultation document or LTP.
Other matter A paragraph may be included in the auditor’s report that refers to a matter other than those presented or disclosed in the consultation document or LTP that, in the Auditor-General’s judgement, is relevant to users’ understanding of the audit, the auditor’s responsibilities, or the auditor’s report.

Audit New Zealand issued opinions on the consultation documents and LTPs for 62 of the 78 local authorities across the country.5

Emphases of matter in 2021

There were several opinions issued with an emphasis of matter that related to asset management.6

For the consultation documents:7

  • 55 opinions included an emphasis of matter relating to the three waters reform;
  • 18 opinions included an emphasis of matter relating to uncertainty over delivery of the planned capital programme;
  • 11 opinions included an emphasis of matter related to asset condition, performance information, and/ or the ability of this information to be used to inform renewals plans; and
  • one opinion included an emphasis of matter related to unclear asset ownership.

For the LTPs:8

  • 55 opinions included an emphasis of matter relating to the three waters reform;
  • 25 opinions included an emphasis of matter relating to uncertainty over delivery of the planned capital programme;
  • 10 opinions included an emphasis of matter related to asset condition, performance information, and/ or the ability of this information to be used to inform renewals plans; and
  • one opinion included an emphasis of matter related to unclear asset ownership.

The proposed Water Services Reform Programme could impact the planned renewals and capital expenditure on three water assets.9 At the time of writing, the reforms are not finalised, so it is unclear where responsibility for managing water assets will rest in future.

The emphases of matter relating to uncertainty that the capital programmes would be delivered arose because the forecast programmes of work far exceeded the past track record of delivery. This was in the context of constrained supply of labour and materials following the Covid-19 pandemic and a period of high inflation where the cost of planned work is likely to rise. The potential impacts of not delivering against the capital programme are risks of reduced levels of service, asset failures, or greater long-term costs. This is explored further in the chapter on capital programme doability.

A poor understanding of asset condition and performance can adversely impact the accuracy of forecasts to renew existing assets. If the condition and/or performance of assets is not known, especially for critical assets, there is a risk that assets/services fail unexpectedly or are no longer able to reliably deliver the required levels of service.

Although the age of assets can be used as a proxy for condition when generating a renewals programme, this is likely to be less accurate than one based on current asset condition and performance. Depending on the significance of the services provided by the asset and the complexity of the asset network, auditors concluded in some cases that a more accurate forecast based on asset condition and performance would have been more appropriate. This is explored further in the chapter on asset information.

Modified opinions in 2021

There were also several modified audit opinions relating to asset management. These impacted both consultation documents and LTPs.

Situation CD opinions LTP opinions
Opinions were qualified for assumptions relating to external funding for capital projects where it was assumed that external funding or revenue would be available for the works (rather than the local authority incurring debt), but no commitments had yet been received for this. Five Four
Opinion modified because the local authority had obtained a road asset from Waka Kotahi (NZ Transport Agency), but the local authority had not recognised its share of the value of Waka Kotahi’s improvements to the road when it was under the control of Waka Kotahi because the information was not available to the local authority. This impacted the forecast maintenance, renewals, and depreciation for the local authority. One One
Opinion modified because the infrastructure strategy did not explain its approach to maintaining and renewing its three waters assets. One None
Opinion modified because the local authority had not included significant estimated costs relating to a full capital upgrade and maintenance of social housing or how this would be funded in the information and assumptions underlying its consultation document. One None
Opinion modified because the local authority assumed that it would have the required resources, contracted services, and resource consents in place to complete capital projects relating to flood and erosion protection on time, but the local authority was unable to provide appropriate evidence to support these assumptions. One None
Opinion modified because the local authority had challenges with its ageing three waters networks. Many of the assets in the networks are old, and a significant percentage had already passed the end of their expected useful life. The local authority had experienced several high-profile pipe failures that affected levels of service. The local authority did not use information about the condition of its three water assets to inform its investment in the network. Rather, the renewal of assets had been forecast based on the age of the assets, capped by what the local authority considered to be affordable. Given the challenges outlined above, auditors considered this approach to be unreasonable. The approach could result in more asset failures during the 10-year period of the LTP, reduced levels of service, and greater costs than forecast. None One
Opinion modified as it was signed after the Government’s announcement on 27 October 2021 that legislation would be introduced to establish four publicly owned water services entities to take over responsibility for three waters service delivery and infrastructure from local authorities from 1 July 2024. The local authority had not amended its forecast information after this announcement to reflect these changes in responsibility. None One

The modified opinions all related to the accuracy, reliability, and ultimately reasonableness of planning. This is a key question that we believe governors and senior managers need to ask themselves: Are we confident that our planning is reliable?

5: Note that the other 16 councils are audited by other audit firms on behalf of the Auditor-General. Their work is not included in this report.

6: A council can have more than one emphasis of matter included in each opinion.

7: For more information on the audit opinions issued on the LTPs for each council, see Part 5 of Office of the Auditor-General, Consulting matters: Observations on the 2021-31 consultation documents, at oag.parliament.nz.

8: For more information on the audit opinions issued on the LTPs for each council, see Appendix 1 of Office of the Auditor-General, Matters arising from our audits of the 2021-31 long-term plans, at oag.parliament.nz.

9: See www.dia.govt.nz/Three-Waters-Reform-Programme.