1 performance and accountability – reflections from audits des pearson auditor-general 5 december...

1

Performance and accountability –

reflections from audits

Des Pearson

Auditor-General

5 December 2012 ▌ Municipal Association of Victoria


2Today’s presentation

1. Purpose, independence and mandate

2. Recent audit findings on strategic planning

3. Upcoming audits

4. Questions



3

1. Purpose, independence and mandate



4External auditor of the public sector



Agencies

ExecutiveGovernment

Auditor-General

Independent officer of Parliament

Parliament

The public

5Purpose and independence

To provide assurance to Parliament on the accountability and performance of the Victorian public sector.• Auditing in the public interest since 1851• Constitutional safeguard to serve interests of Parliament• Accountable to Parliament via the Public Accounts and Estimates

Committee.

‘Independent office of Parliament’ – Constitution Act 1975 s94B

• ‘has complete discretion in the performance or exercise of his or her functions or powers and, in particular, is not subject to direction from anyone’.

• Balanced by accountability requirements for the office.



6Auditor-General’s mandate

Attest audit – ‘how much’

Annual audit of the financial statements of around 550 agencies and the non-financial performance statements of around 115 agencies

• Includes local government:

• Mandate for financial statement audits → Audit Act 1994, s8

• Mandate for non-financial performance statement audits → Local Government Act 1989, s133

• Around 70% (by number) by external providers from private sector.

• Produce audit opinions and management letter

• To form these opinions, we focus on the internal controls in place to safeguard the reliability and completeness of financial statements

• Includes more in-depth focus into different specific controls each year → areas of focus




Attest audit – ‘how much’ (cont.)

Report to Parliament on:

• Review of the Estimated Financial Statements

• Examination of the State’s Annual Financial Report

• Results from audits (by sector) → Local Government: Results of the 2011-12 Audits tabled in November 2012. Contains assessment of:

• Financial results

• Financial sustainability

• Quality of performance information

• Internal controls including focus areas:

– budget development and management

– outsourcing activities




Performance audit – ‘how well’

Around 28 audits a year:

• Determine whether an authority is achieving its objectives and operating economically, efficiently and effectively in compliance with relevant Acts

• Not to question the merits of policy objectives

• Wide powers of access and examination

• Includes local government → mandate from Audit Act 1994, s15

Reporting on the results of performance audits

• Rolling program of audits

• Annual Plan outlines VAGO’s four-year plan of audits



9Value of audit to local government

This means each year, VAGO looks at all 79 councils in up to 3 ways:

• Attest audits of financial statements

• Attest audits of performance statements

• Performance audits (subject to annual plan)

→ There is a wealth of information available to you from our audits on the performance of your council.



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2. Recent audit findings on strategic planning



11Themes from recent performance audits

A review of local government audits between 2000 and 2011 (in Performance Reporting in Local Government) identified recurring issues with planning and budgeting:

• Lack of long-term strategic plans underpinning financial plans

• Inadequate links between corporate plans, asset management plans and budget processes

• Inadequate funding models resulting from poor forward planning

• Inadequate asset management plans, compromising effective management of $1.6 billion in assets.



Page 9

12Auditing the 2003 reforms

2003 – the Local Government Act 1989 was amended, introducing:• a new planning framework for local government, aimed at achieving

more effective strategic planning for municipalities.• designed to better align strategic planning with annual planning

• a requirement for councils to apply principles of sound financial management to their planning and budgeting

2011 – audit of Business Planning for Major Capital Works and Recurrent Services in Local Government (September 2011)

• Objective – determine the effectiveness of council business planning and budgeting for major capital works and recurrent services.



13Audit conclusions

• Intent of planning reforms not realised

• Councils acquitted minimum statutory requirements instead of

integrating planning

• 3 of the 4 councils examined need to improve their planning and

budgeting considerably.

So…

What were the specific problems with council planning that the

audit identified?



141. Community consultation

‘The primary objective of a Council is to endeavour to achieve the best outcomes for the local community having regard to the long term and cumulative effects of decisions’ – Local Government Act, s 3C

→ council planning should begin with community consultation.

Audit findings

• Three of the four councils examined had a community engagement policy, however:

• Only one council had applied this policy as intended

• Two could not demonstrate that they had adequately sought, considered or analysed community expectations.

• One council did not have a community engagement policy, and while it did do some consultation, it had not fully informed the community on the consequences of its aspirations.



152. Four-year council plan

Intention of 2003 reforms – get councils to establish links between:

• Objectives/desired outcomes

• Resources needed to achieve these

• How progress will be measured

Four-year council plan contains:

• Strategic objectives/outcomes

• Strategies for achieving these objectives

• Key performance indicators to measure progress

→ encourage people to think about what is important to their community



16Problems with council plans

• Strategic objectives not clearly articulated.

• Compromises the extent to which you can achieve what you set out to

• Difficult to measure

• Confused lower level tasks with strategic objectives

• Key performance indicators

• Focused on activities not outcomes

• Too many indicators – hard to measure

• Targets

• One council had none

• Another council’s targets were overly optimistic.



173. Integrating planning and budgeting



18Integrating planning and budgeting

• Need to understand and recognise the importance of integrating your business planning and budgeting.

• Aligning the different components of planning allows them to support the objectives and strategies of council plans.

• Not mandated → but critical to ensuring integrated planning

• Benefits of integration:

• Aligns the council plan with community values and priorities

• Enables longer-term service delivery and resource allocation decisions that extend beyond the four-year council planning cycle



19Integrating planning and budgeting

Finding:

Three of the four councils audited had not integrated their planning effectively.

We found examples of:

• Expenditure and asset investment decisions were primarily driven by a focus on improving financial ratios, rather than the priorities emanating from service and asset planning

• Lack of divisional plans to support implementation of council plans

• Not all initiatives/activities in shorter-term plans clearly linked to council plan’s objectives

• Different plans (e.g. corporate plan and council plan) did not have the same actions in them.



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3. Upcoming audits



21Performance audit – proposed topics

• Rating practices in local government (February 2013)

• Organisational sustainability of small councils (June 2013)

• Asset management and maintenance by councils (2013-14)

• Shared services in local government (2013-14)

• Effectiveness of councillor training and support (2013-14)

• Long-term financial planning by local government (2014-15)

• Emergency management for fire, flood and other potential disasters

(2014-15)

• Land use planning: Preparing for risk of rising sea levels (2015-16)



22Attest audit – proposed areas of focus

2012-13

• Outsourcing

• Budget management

2013-14

• Rate revenue

• Audit committees

2014-15

• Credit card security and usage

• Management of creditors

• Risk management

2015-16

• Asset revaluation reserve

• Management of employee leave



23Questions



24More information

All our tabled audits and information on upcoming audits is available at www.audit.vic.gov.au

Level 24, 35 Collins Street Melbourne

Victoria 3000

Australia

+61 3 8601 7000



http://www.audit.vic.gov.au/

1 performance and accountability – reflections from audits des pearson auditor-general 5 december...

Documents

results of performance

recent performance audits

local government mandate

annual planning

audit of business planning

public slide

local government act

annual audit