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SHIRE OF AUGUSTA MARGARET RIVER AUDIT AND RISK MANAGEMENT COMMITTEE 24 JUNE 2020

6.0 Attachments to Reports ITEM NO SUBJECT PAGE 6.1 INTERIM AND END OF FINANCIAL YEAR AUDIT 1

6.2 REPORT ON INTERNAL AUDIT REVIEW 6


6.0 REPORTS 6.1 INTERIM AND END OF FINANCIAL YEAR AUDIT

Attachment 1 – Letter from Officer of the Auditor General – Interim Audit Results for the Year Ending June 2020

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OAG Office of the Auditor General S e r v i n g t h e P u b l i c Interest

Our Ref: 8655

President Shire of Augusta Margaret River PO Box 61 MARGARET RIVER WA 6285

Dear President

ANNUAL FINANCIAL REPORT INTERIM AUDIT RESULTS FOR THE YEAR ENDING 30 JUNE 2020

7th Floor, Albert Facey House 469 Wellington Street, Perth

Mail to: Perth BC PO Box 8489

PERTH W A 6849

Tel: 08 6557 7500 Fax: 08 6557 7600

Email: [email protected]

We have completed the interim audit for the year ending 30 June 2020. We performed this phase of the audit in accordance with our audit plan. The focus of our interim audit was to evaluate the overall control environment, but not for the purpose of expressing an opinion on the effectiveness of internal control, and to obtain an understanding of the key business processes, risks and internal controls relevant to our audit of the annual financial report.

Management Control Issues I would like to draw your attention to the attached listing of deficiencies in internal control and other matters that were identified during the course of the interim audit. These matters have been discussed with management and their comments have been included on the attachment. The matters reported are limited to those deficiencies that were identified during the interim audit that we have concluded are of sufficient importance to merit being reported to management. Some of the matters may be included in our auditor's report in accordance with section 7.9(2) of the Local Government Act 1995 or regulation 10(3)(a) and (b) of the Local Government (Audit) Regulations 1996. If so, we will inform you before we finalise the report.

This letter has been provided for the purposes of your local government and may not be suitable for other purposes.

We have forwarded a copy of this letter to the CEO. A copy will also be forwarded to the Minister for Local Government when we forward our auditor's report on the annual financial report to the Minister on completion of the audit.

Feel free to contact me on 6557 7609 if you would like to discuss these matters further.

Yours faithfully

,,Yeh

JORDAN LANGFORD-SMITH ACTING ASSISTANT AUDITOR GENERAL INFORMATION SYSTEMS AND PERFORMANCE AUDIT 30 APRIL 2020

Attach 111111111111111111111111111111111111111111111 Doc No: 1375110 File: FIN/7 Date: 04 MAY 2020

I375110I375110

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Attachment

SHIRE OF AUGUSTA MARGARET RIVER PERIOD OF AUDIT: YEAR ENDED 30 JUNE 2020 FINDINGS IDENTIFIED DURING THE INTERIM AUDIT

INDEX OF FINDINGS RATING

Significant Moderate Minor 1. Revenue has not been recognised in accordance

with AASB 15 or AASB 1058. v

2. Purchase orders are raised after service performed or good received.

v

KEY TO RATINGS The ratings in this management letter are based on the audit team's assessment of risks and concerns with respect to the probability and/or consequence of adverse outcomes if action is not taken. We give consideration to these potential adverse outcomes in the context of both quantitative impact (for example financial loss) and qualitative impact (for example inefficiency, non-compliance, poor service to the public or loss of public confidence).

Significant - Those findings where there is potentially a significant risk to the entity should the finding not be addressed by the entity promptly.

Moderate - Those findings which are of sufficient concern to warrant action being taken by the entity as soon as practicable.

Minor - Those findings that are not of primary concern but still warrant action being taken.

Page 1 of 3 3

Attachment

SHIRE OF AUGUSTA MARGARET RIVER

PERIOD OF AUDIT: YEAR ENDED 30 JUNE 2020

FINDINGS IDENTIFIED DURING THE INTERIM AUDIT

FINDINGS

1. Revenue has not been recognised in accordance with AASB 15 or AASB 1058

Finding Our sample testing of revenue transactions (rates, grants and fees and charges) noted some revenue has not been recognised in accordance with the new accounting standards for revenue, AASB 15: 'Revenue from Contracts with Customers' and AASB 1058: 'Income of Not- for-Profit Entities'.

Rating: Significant Implication As these standards result in delayed income recognition, the Shire's revenue may be overstated for the 2019-20 financial year. In addition, monthly financial information may not be accurate and financial decision making may be ill-informed.

Recommendation The Shire should complete a detailed revenue recognition assessment of all revenue streams against the requirements of the new standards. This should conclude if a particular revenue stream or transaction arises from an enforceable contract with a customer and has sufficiently specific performance obligations. This assessment will trigger the revenue recognition requirements under AASB 15, or if it falls outside this scope, under AASB 1058, so that revenue is not misstated for the 2019-20 financial year.

Management comment The finding is accepted and it is advised the process of revenue recognition assessment and will be completed during 2019-20.

Responsible person: Completion date:

Manager Corporate Services 30 June 2020

Page 2 of 3 4

Attachment

SHIRE OF AUGUSTA MARGARET RIVER

PERIOD OF AUDIT: YEAR ENDED 30 JUNE 2020

FINDINGS IDENTIFIED DURING THE INTERIM AUDIT

2. Expenditure was not always supported by a purchase order

Finding Our sample testing of payment transactions noted 1 instance out of a total of 12 transactions tested (8%) where purchase orders were raised after the invoice was received.

Rating: Moderate Implication Purchases made without authorised purchase orders increases the risk of unauthorised expenditure occurring and going undetected.

Recommendation The Shire should ensure that authorised officers raise purchase orders prior to authorising works/services or ordering goods. This will help to ensure works/services or goods are valid, authorized appropriately and that expenditure is consistent with approved budgets.

Management comment The finding is accepted. Although the sample size is small, it does seem to be reflective of the current situation despite continued user education and reinforcement efforts. The process of user education will continue and audits will recommence once resources allow.

Responsible person: Manager Corporate Services Completion date: Ongoing

Page 3 of 3 5


6.0 REPORTS 6.2 REPORT ON INTERNAL AUDIT REVIEW

Attachment 1 – Internal Audit Review 2020 prepared by AMD Chartered Accountants Attachment 2 – Extract from Strategic Audit Plan

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Internal Audit Review

2020

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23 March2020

Mrs S. Addison-Brown

Chief Executive Officer

Shire of Augusta – Margaret River

PO Box 65

MARGARET RIVER WA 6285

Dear Stephanie

2020 INTERNAL AUDIT REVIEW

We are pleased to present the findings and recommendations resulting from our Shire of Augusta - Margaret

River (“the Shire”) Internal Audit Review.

The primary objective of our Internal Audit Review was to assess the adequacy and effectiveness of systems

and controls in place within the Shire; in accordance with Section 5 of the Shire’s Strategic Internal Audit Plan

and related terms of reference.

This report relates only to procedures and items specified within the 2018 to 2022 five year Strategic Internal

Audit Plan and does not extend to any financial report of the Shire.

We note that on an overall basis, we consider there to be relatively few findings to report based on Council’s

size and the nature of activities undertaken by Council.

We would like to thank Andrew, Lynne and the staff at the Shire for their co-operation and assistance whilst

conducting our review.

Should there be matters outlined in our report requiring clarification or any other matters relating to our

review, please do not hesitate to contact me.

Yours sincerely

AMD Chartered Accountants

TIM PARTRIDGE FCA

Director

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2020 Internal Audit Review Report Page 3 of 23

Table of Contents 1. Executive Summary ........................................................................................................................................ 5

1.1. Approach and Objectives............................................................................................................................ 5

1.2. Summary of Findings .................................................................................................................................. 5

2. Collection of money ........................................................................................................................................ 8

2.1. Scope and approach ................................................................................................................................... 8

2.2. Detailed findings and recommendations ................................................................................................... 8

2.2.1. Library Receipting and Banking Process ................................................................................................. 8

2.2.2. Aged Sundry Debtor Follow Up .............................................................................................................. 9

3. Custody and security of money ....................................................................................................................10

3.1. Scope and approach .................................................................................................................................10

3.2. Detailed findings and recommendations .................................................................................................10

4. Maintenance and security of the financial records ......................................................................................11



4.2.1. ICT Disaster Recovery Plan Testing .......................................................................................................11

5. Accounting for municipal or trust transactions ............................................................................................13



5.2.1. Trust Balances .......................................................................................................................................13

5.2.2. Waste Facility Rehabilitation Provision ................................................................................................14

6. Authorisation for incurring liabilities and making payments .......................................................................15


6.2. Detailed findings and recommendations ......................................................................................................15

6.2.1. Purchase Orders ...................................................................................................................................15

7. Maintenance of payroll, stock control and costing records .........................................................................16



7.2.1. Excessive Leave .....................................................................................................................................16

8. Preparation of budgets, budget reviews, accounts and reports required by the Act or the Regulations ...18



9. Property, including vested land management, property and lease management ......................................19



9.2.1. Lease Register and Leases Requires Update ........................................................................................20

9.2.2. Playground Inspections ........................................................................................................................20

9.2.3 Register of Heritage Buildings ..............................................................................................................21

10. Guidance on Risk Assessment ........................................................................................................................22

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Inherent limitations

Due to the inherent limitations of any internal control structure, it is possible that fraud, error or non-compliance with laws and regulations may occur

and not be detected. Further, the internal control structure, within which the control procedures that have been subject to review, has not been

reviewed in its entirety and, therefore, no opinion or view is expressed as to its effectiveness of the greater internal control structure. This review is not

designed to detect all weaknesses in control procedures as it is not performed continuously throughout the period and the tests performed on the

control procedures are on a sample basis. Any projection of the evaluation of control procedures to future periods is subject to the risk that the

procedures may become inadequate because of changes in conditions, or that the degree of compliance with them may deteriorate.

We believe that the statements made in this report are accurate, but no warranty of completeness, accuracy or reliability is given in relation to the

statements and representations made by, and the information and documentation provided by, the Shire of Augusta- Margaret River management and

personnel. We have indicated within this report the sources of the information provided. We have not sought to independently verify those sources

unless otherwise noted with the report. We are under no obligation in any circumstance to update this report, in either oral or written form, for events

occurring after the report has been issued in final form unless specifically agreed with Shire of Augusta- Margaret River. The review findings expressed in

this report have been formed on the above basis.

Third party reliance

This report was prepared solely for the purpose set out in this report and for the internal use of the management of Shire of Augusta- Margaret River.

This report is solely for the purpose set out in the ‘Scope and Approach’ of this report and for Shire of Augusta- Margaret River’s information, and is not

to be used for any other purpose or distributed to any other party without AMD's prior written consent. This review report has been prepared at the

request of the Shire of Augusta- Margaret River Chief Executive Officer or its delegate in connection with our engagement to perform the review as

specified within the 2018 to 2020 five year Strategic Internal Audit Plan. Other than our responsibility to the Council and management of Shire of

Augusta- Margaret River, neither AMD nor any member or employee of AMD undertakes responsibility arising in any way from reliance placed by a third

party, including but not limited to the Shire of Augusta- Margaret River’s external auditor, on this report. Any reliance placed is that party's sole

responsibility.

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1. Executive Summary

1.1. Approach and Objectives The primary objective of our internal audit review, which included a Financial Management System

Review (“FMSR”), was to assess the adequacy and effectiveness of systems and controls in place within

the Shire; in accordance with Section 5 of the Shire’s Strategic Internal Audit Plan and related terms of

reference.

The responsibility of determining the adequacy of the procedures undertaken by us is that of the Chief

Executive Officer (“CEO”) and Audit and Risk Management Committee. The procedures were performed

to assist the CEO in satisfying her duty under Section 6.10 of the Local Government Act 1995 and

Regulation 5(1) of the Local Government (Financial Management) Regulations 1996.

Our findings included within this report are based on the site-work completed by us during the week

ending 14th February 2020. Findings are based on information provided and available to us following our

requests during this site visit.

1.2. Summary of Findings The procedures performed and our findings on each of the focus areas are detailed in the following

sections of the report:

• Section 2 - Collection of money;

• Section 3 - Custody and security of money;

• Section 4 - Maintenance and security of the financial records;

• Section 5 - Accounting for municipal or trust transactions;

• Section 6 - Authorisation for incurring liabilities and making payments;

• Section 7 - Maintenance of payroll, stock control and costing records;

• Section 8 - Preparation of budgets, budget reviews, accounts and reports required by the Act or the

regulations; and

• Section 9 – Property, including vested land management, property and lease management.

In addition to the review of processes, procedures and testing completed at the Shire of Augusta-

Margaret River office, our internal audit review included a visit to each of the following sites:

• Davis Road Recycling and Waste Management Facility;

• Turner Caravan Park;

• Flinders Bay Caravan Park;

• Augusta Shire Office;

• Margaret River Heart;

• Margaret River Depot;

• Margaret River Library; and

• Margaret River Recreation Centre.

Following the completion of our review and subject to the recommendations outlined within sections 2

to 9, we are pleased to report that in context of the Shire’s overall internal control environment, policies,

procedures and processes in place are appropriate, and have been operating effectively at the time of

our review.

On an overall basis, we consider there to be relatively few findings to report based on Council’s size and

the nature of activities undertaken by Council.

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Findings reported by us are on an exceptions basis, and do not take into account the many focus areas

tested during our review where policies, procedures and processes were deemed to be appropriate and

in accordance with best practice.

The following tables provide a summary of the findings raised in this report:

Compliance Breach High Risk Moderate Risk Low Risk

Number of issues reported 1 2 2 7

For details on the review rating criteria, please refer to Section 10.

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Ref Issue Risk Rating

2. Collection of money

2.2.1

Library Receipting

• Banking and reconciliation of library receipts is only completed fortnightly; and

• Instances identified where EFT was receipted as cash at the library. Instances whereby cash was

received but not receipted into the accounting system.

Low

2.2.2 Aged Sundry Debtors

Various long outstanding sundry debtors identified. Low

3. Custody and security of money

We are pleased to note we have no findings to raise in respect to the custody and security of money.

4. Maintenance and security of financial records

4.2.1. Disaster Recovery Plan Testing

There is no formal process for testing the Shire’s ICT Disaster Recovery Plan. Moderate

4.2.2.

Key security and listing

Depot Key Cabinet workshop is unlocked with the office unattended at times during the day. There is no

register to record the daily use of plant and machinery, including check in and check out of keys.

Low

5. Accounting for municipal or trust transactions

5.2.1.

Trust balances

Review of trust balances required as some monies are being held in trust may no longer be considered

trust funds.

High

5.2.2.

Waste Facility Rehabilitation Provision

No assessment and/or provision has been calculated and recorded in relation to the Waste Facility

rehabilitation and closure costs.

High

6. Authorisation for incurring liabilities and making payments

6.2.1. Purchase Orders

Instances identified whereby purchase orders were dated after the invoice. Low

7. Maintenance of payroll, stock control and costing records

7.2.1. Excessive leave

Numerous employees with annual leave entitlements in excess of 6 weeks identified. Low

8. Preparation of budgets, budget reviews, accounts and reports required by the Act or the Regulations

8.2.1.

Monthly Financials to Council

August 2019 monthly financials were not presented to Council within two months after month end as

required by the Local Government (Financial Management) Regulations 1996.

Breach

9. Property, including vested land management, property and lease management

9.2.1. Lease Register and Lease Agreement Details

Various updates are required to Council’s published Lease Register. Moderate

9.2.2.

Playground inspections

There is currently no formal register outlining the timeline/requirements for playground inspections

within the Shire.

Low

9.2.3. Heritage Listing Register

The listing of heritage buildings owned by the Shire requires updating (last updated 2012). Low

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2. Collection of money

2.1. Scope and approach

In accordance with the scope set out in our Strategic Internal Audit Plan, our review focused on the

following:

• Documented financial systems detailing controls, procedures and reconciliations in relation to all

sources of income;

• Reviewed the controls and procedures over the collection, receipting, recording and banking of cash

collected at the following cash collection sites:

o Margaret River Civic Administration Centre;

o David Road Recycling and Waste Management Facility;

o Turner Caravan Park;

o Flinders Bay Caravan Park;

o Augusta Shire Office;

o Margaret River Heart;

o Margaret River Library; and

o Margaret River Recreation Centre.

• Counted petty cash and float on hand at the above mentioned sites ensuring the correct balance

held;

• Tested collection, receipting, invoicing and posting procedures over cash receipts on a sample basis;

• Reviewed credit control procedures in respect to sundry debtors and rates debtors;

• Reviewed fees and charges schedule to ensure adequate internal controls in place over receipting;

• Tested collection, receipting, invoicing and posting procedures over cash receipts on a sample basis;

and

• Reviewed credit control procedures in respect to sundry debtors and rates debtors.

2.2. Detailed findings and recommendations

2.2.1. Library Receipting and Banking Process

Finding Rating: Low

During our review and observation of the library banking process we noted the following:

• Banking and reconciliation of library receipts is only completed fortnightly which often results in the

accumulation of $1,000 to $1,500 of cash proceeds on a fortnightly basis; and

• Instances identified whereby monies were collected via EFT however monies were incorrectly

receipted as cash; and

• Instances identified where cash received was not receipted into the accounting system.

Implication / Risks

Untimely banking of Council’s cash takings and receipting errors resulting in an increased risk of

error or fraud.

Recommendation

We recommend:

• Banking is performed for library takings on a more regular basis; and

• Processes and controls are implemented put into place to ensure cash and EFT receipts are recorded

and reconciled correctly.

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Management Comment

Recommendation is accepted and has been discussed with Manager Library Services.

2.2.2. Aged Sundry Debtor Follow Up

Finding Rating: Low

Although immaterial, we identified various individual debtors which have been outstanding for a

significant period of time (e.g. up to 600 days).

Implication / Risks

Sundry debtors continue to be recorded which may not be collectable.

Recommendation

Should Council deem individual sundry debtors may not be collected, they should be written off to

ensure debtors are not overstated. We also recommend remaining overdue debtors are followed up

on a timely basis with appropriate action taken accordingly.

Management Comment

Recommendation accepted. The value of outstanding debtors is low compared to debts that are

raised and outstanding debtors are regularly reviewed in consultation with the Shire’s contracted

debt collection agency Ampac WA Pty Ltd, and written off if deemed uncollectable.

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3. Custody and security of money



following:

• Completed site visits to cash collection points and reviewed the controls and procedures over the

collection, receipting, recording and banking of cash collected offsite;

• Reviewed the security of cash and banking procedures to ensure appropriate controls and

procedures are in place; and

• Reviewed compliance with investment policy.

Please note – Testing completed and procedures performed in respect to custody and security of money

should be reviewed in conjunction with “Section 2 – Collection of Money”.


Our review indicated key underlying policies, procedures and processes in relation to the custody and

security of money held by the Shire are appropriate, in line with best practice and were found to be

operating effectively.

Accordingly, we have no recommendations to raise in respect to the custody and security of money held

by the Shire.

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4. Maintenance and security of the financial records



following:

• Reviewed information technology systems to assess critical matters including physical security,

access security, data backups, contingency plans, compliance and systems development; and

• Reviewed registers maintained (including key register, tender register etc) and review of Council

minutes.


4.2.1. ICT Disaster Recovery Plan Testing

Finding Rating: Moderate

Our inquiries with management indicated that the Shire currently has no formal process or

predetermined schedule for testing the existing ICT Disaster Recovery Plan. Disaster recovery testing

was scheduled to take place in 2015-16, however this did not occur and has not occurred since.

Implication / Risks

Risk of significant delays in business interruption in the event of unforeseen circumstances.

Recommendation

We recommend the Shire implement a process to test and evaluate the ICT Disaster Recovery Plan

to ensure it is current, adequate, and will effectively mitigate disruption in the event of unforeseen

circumstances.

Management Comment

Recommendation accepted. IT Business Continuity has been included as a theme in the Information

Communications and Technology Strategic Plan 2019-20 to 2023-24 that is currently being reviewed

and amended. This theme includes a number of strategies and actions that will provide improved

structure for this process.

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4.2.2. Depot Key Security and Register

Finding Rating: Low

We noted the following in respect to the key register and security of keys;

• There is no formal sign in / out key register maintained to record the daily usage of Shire

plant and machinery at the depot; and

• The depot key cabinet remains unlocked at all times.

Implication / Risks

Increased risk of theft and misuse of shire equipment.

Recommendation

We recommend:

• A key register be developed for the recording of daily usage activity of plant and machinery

at the depot; and

• The key cabinet be locked when access is not required.

Management Comment

Recommendation accepted and has been provided to the acting Director Infrastructure Services and

acting Manager Works to action and it is understood the task has been allocated.

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5. Accounting for municipal or trust transactions



following:

• Reviewed all monthly reconciliations including bank, sundry debtors, sundry creditors, fixed assets,

rates debtors and rateable value reconciliations ensuring correctly reconciled and independently

reviewed;

• Reviewed and tested most recent municipal and trust bank reconciliations prepared;

• Reviewed processes in respect to BAS, FBT Return and other statutory returns preparation;

• Reviewed use of reserve funds and determined whether changes in reserve purposes had been

budgeted or public notice provided;

• Reviewed self-supporting loan transactions ensuring debtor invoices raised in accordance with

payment schedule;

• Reviewed trust ledger balances; and

• Reviewed policies and procedures in respect to insurance, recording claims and insuring newly

acquired assets.


5.2.1. Trust Balances

Finding Rating: High

Our review of the detailed trust ledger balances listing as at 30 November 2019 and trust funds held

in Council’s trust bank account indicate there are a number of balances which should no longer be

classified as trust, based on the Office of Auditor General’s (OAG) Position Paper 1 “Accounting for

Work Bonds, Building Bonds and Hire Bonds” issued 1 July 2019; and should instead be transferred

to Council’s Municipal account.

Implications / Risks

Risk the Shire incorrectly continues to hold monies in trust which should no longer be classified as

trust funds.

Recommendation

We recommend a detailed review of the trust ledger balances listing be completed as per OAG’s

position paper, with transfers made to the Municipal account accordingly.

Management Comment

Recommendation accepted. Monies which should no longer be held in trust in accordance with the

Office of the Auditor General’s directions will be moved to the municipal account in 2019-20. This

approach has been confirmed with the Shire’s external auditors.

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5.2.2. Waste Facility Rehabilitation Provision

Finding Rating: High

Our inquiries with management indicated there has been no assessment completed regarding anticipated

rehabilitation and closure costs in relation to the Davis Road and Wallis Road waste facilities and

therefore no rehabilitation provision or future cost contingency had been provided for as a liability within

Council’s Statement of Financial Position.

Implication

Risk of provision for rehabilitation costs being understated in Council’s Statement of Financial Position.

Recommendation

We recommend an assessment be completed in relation to the Davis Road and Wallis Road waste

facilities, including consideration whether a provision is required should present obligation for

rehabilitation costs exist.

Management Comment

Recommendation is noted and has been discussed with the Manager Waste and Health.

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6. Authorisation for incurring liabilities and making payments



following:

• Reviewed controls and procedures over the authorisation of purchase orders and making of

payments;

• Tested a sample of payments to ensure compliance with stated procedures;

• Reviewed tender procedures and ensured compliance with stated procedures;

• Reviewed credit card processes and procedures, and tested transactions on a sample basis;

• Reviewed petty cash processes and procedures, and tested transactions on a sample basis;

• Completed sample tests in respect to asset additions and asset disposals;

• Reviewed asset capitalisation and depreciation policies and ensured compliance with stated policies;

and

• Reviewed new loans ensuring budgeted for or public notice provided.


6.2.1. Purchase Orders

Finding Rating: Low

Based on our sample testing, we identified the following instances whereby purchase orders were

dated after the invoice:

o Purchase Order 124136 (Climatic Services) dated 8 August 2019 with corresponding Invoice

dated 22 July 2019; and

o Purchase Order 126589 (Paperscout) dated 19 December 2019 with corresponding Invoice

dated 28 November 2019.


Risk of unauthorised purchases.

Recommendation

We recommend purchase orders are raised and approved prior to expenditure being incurred in

accordance with Council’s Procurement Guide.

Management Comment

Recommendation accepted. Staff training, education and reinforcement of purchasing procedures is

an ongoing process.

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7. Maintenance of payroll, stock control and costing records



following:

• Completed a Site visit to the Margaret River depot to review security over stocks and materials held

and allocation / costings of stocks used (including fuel and inventory stocks);

• Completed detailed analysis and testing to review the allocation of overheads and administration

costs;

• Reviewed payroll controls and procedures to ensure effective controls are in place, and complete

tests on a sample basis to ensure controls were operating effectively;

• Reviewed annual leave balances and identified employees with excessive annual leave balances;

• Reviewed existing HR procedures manual;

• Reviewed process for identification and review of relevant legislative and internally imposed

requirements relating to human resources including Local Government Act and Regulations, Awards,

EBA, OSH requirements, internal contracts, code of conduct (Councillor and employee), budgetary

salary position matrix, staff incident and complaint reporting mechanisms etc;

• Reviewed recruitment procedures including setting up of new employees;

• Reviewed processes for setting pay rates, staff performance and pay reviews;

• Reviewed payroll recording and payment procedures, including timesheet authorisation, timesheet

data entry; payroll processing and payment authorisation procedures;

• Reviewed disciplinary and termination procedures;

• Reviewed management of leave entitlements, including use of leave forms, authorisation of leave

forms, processing and reconciliation of employee provisions on a regular basis;

• Reviewed payroll deductions, including employee authorisation and documentation;

• Reviewed superannuation and group tax deduction payments; and

• Tested a sample of termination payments, including review and authorisation prior to payment.


7.2.1. Excessive Leave

Finding Rating: Low

Our review of employee leave as at 30 November 2019 identified numerous employees whom have

an annual leave balance in excess of six weeks with some of these employees also having a present

entitlement to Long Service Leave.


1. The cost to Council is greater if annual leave is not paid out on a regular basis due to the

cumulative effect of salary increases over a period of time.

2. Recreational leave enhances employee performance.

3. It is a fundamental principle of good internal control that all employees take regular

holidays.

Recommendation

We recommend leave balances continue to be managed to reduce the number of employees with

excessive leave entitlements due.

22


Management Comment

Recommendation accepted. An excessive leave procedure is in place and reinforced with staff on a

regular basis. Reports of excessive leave balances by employee are provided to the executive

leadership team on a quarterly basis for review as part of this process.

23


8. Preparation of budgets, budget reviews, accounts and reports required by the

Act or the Regulations



following:

• Reviewed policy and procedure manuals;

• Reviewed the procedures for preparation of monthly accounts and general ledger account

reconciliations;

• Reviewed the procedures for preparation of the annual Financial Statements and annual Budget,

including assessment of accounting policy, notes and applicable reporting requirements and

efficiency of the process;

• Reviewed monthly financial statements ensuring presented to Council within two months and

information contained within monthly financial statements in accordance with Regulation 34 of

Local Government (Financial Management) Regulations 1996;

• Reviewed the mid-year budget review to ensure compliance with Regulation 33A of the Local

Government (Financial Management) Regulations 1996 and assessment of budgetary expenditure

controls in place; and

• Ensured prior year audit report and management letter have been presented to audit committee

and Council.


8.2.1. Monthly Financials to Council

Finding Rating: Breach

We noted the August 2019 monthly financial activity report was not presented to Council in a timely

manner in accordance with Regulation 34 of the Local Government (Financial Management)

Regulations 1996 (subsequently presented on 13 November 2019).


Breach of statutory requirement.

Recommendation

We recommend all monthly financial activity reports are presented to Council within two months of

month end as required by Regulation 34 of the Local Government (Financial Management)

Regulations 1996.

Management Comment

Recommendation noted. Our objective is to always provide the monthly financial report to Council

within 2 months of the end of the month in accordance with legislative requirements. In our view

there were extenuating circumstance that did not allow this to occur for the August 2019 monthly

financial report. Specifically, Council had earlier agreed that no meetings would be held during

school holidays which resulted in one meeting be scheduled for October. This meeting then became

a Special Meeting with the sole purpose of swearing in Councillors after the October 2019 election.

The August 2019 financial report had been prepared and was able to be provided to Council in

October but changed circumstances did not allow this to occur.

24


9. Property, including vested land management, property and lease management



following:

• Reviewed freehold and vested land registers ensuring up to date;

• Reviewed title deeds for a sample of freehold properties;

• Assessed whether vested land is utilised for the correct purposes;

• Reviewed property lease register, ensuring up to date;

• Selected a sample of leased properties from the lease register and:

o Reviewed leases for leased properties ensuring properly authorised and executed;

o Reviewed lease management procedures ensuring leases are regularly followed up with rent

adjustments made on a timely basis, lessee insurance requirements met and other specific

obligations as outlined within the lease agreement are complied with;

o Enquired in respect to property utility and use charges ensuring on-charging compliant with

lease agreements;

o Considered rates of return received on investments compared to arm’s length market rates,

including a review of discounted / peppercorn lease arrangements;

• Enquired in respect to vacant properties (if any) and the reason for the vacancy;

• Assessed adequacy of land inspection frequency and checklists;

• Assessed land and building maintenance plans, ensuring up to date;

• Ensured a recent capital upgrade in respect to a building has complied with procurement

procedures;

• Assessed land and building insurance requirements, ensuring up to date and adequately insured;

• Assessed environmental considerations and compliance with any specific laws or regulations; and

• Assessed heritage listed properties (if any) to ensure managed in accordance with statutory

requirements.

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9.2.1. Lease Register and Leases Requires Update

Finding Rating: Moderate

Review of the lease register maintained on the Shire’s intranet identified the following details were

not up to date;

• A lease term was incorrectly stated in a lease agreement – as “10 years starting 1 July

2013 to 30 June 2013”;

• Lease expiry dates noted for various properties had expired;

• Public Liability insurance details initially obtained from The Lessee had expired (dating

back to 2016); and

• Several instances where Public Liability insurance had not been obtained from the

Lessee with no additional comments included within the register.

Examples of the above can be provided upon request.


Risk the lease register does not reflect current conditions of lease arrangements.

Recommendation

We recommend the lease register be updated periodically to ensure all details are current to ensure

Lessee’s hold appropriate insurance coverage as required by the Lease Agreement.

Management Comment

Recommendation noted. Although the lease register is updated regularly this matter will be brought

to the attention of the Manager Legal and Governance Services.

9.2.2. Playground Inspections

Finding Rating: Low

Our observations, enquiries and discussions with Depot staff, identified there is no formal process in

place regarding the inspection of Shire owned playgrounds.


Risk that required maintenance is not identified and completed in a timely manner.

Recommendation

We recommend a formal process be developed to ensure all Shire owned playgrounds are regularly

inspected and assessed for any required maintenance.

We further recommend the process is documented and a checklist developed to ensure all

requirements are considered during inspections.

Management Comment

Recommendation noted and has been discussed with the acting Manager Works. It has been

advised inspections are undertaken quarterly with the June inspection undertaken by an

independent contractor. However, it is recognised the process can be improved.

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9.2.3 Register of Heritage Buildings

Finding Rating: Low

We note the register for heritage listed buildings is not up to date (last updated 2012).

Implication / Risks

Risk of incomplete Heritage building records.

Recommendation

We recommend the heritage listed buildings register be updated to ensure current and complete.

Management Comment

Recommendation noted. A review of the Municipal Heritage Inventory is scheduled to commence in

2019-20.

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10. Guidance on Risk Assessment Risk is uncertainty about an outcome. It is the threat that an event, action or non-action could affect an

organisation’s ability to achieve its business objectives and execute its strategies successfully. Risk is an

inherent component of all service activities and includes positive as well as negative impacts. As a result not

pursuing an opportunity can also be risky. Risk types take many forms − business, economic, regulatory,

investment, market, and social, just to name a few.

Risk management involves the identification, assessment, treatment and ongoing monitoring of the risks and

controls impacting the organisation. The purpose of risk management is not to avoid or eliminate all risks. It

is about making informed decisions regarding risks and having processes in place to effectively manage and

respond to risks in pursuit of an organisation’s objectives by maximising opportunities and minimising

adverse effects.

The risk guidelines stated within the Shire of Augusta Margaret River’s Risk Management Framework.

Measure of Likelihood of Risk

Likelihood is the chance that the event may occur given knowledge of the organisation and its environment.

The following table provides broad descriptions to support the likelihood rating:

*Above Extracted from the Shire’s Risk Management Framework.

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Measure of Consequence of Risk

Consequence is the severity of the impact that would result if the event were to occur. The following table

provides broad descriptions to support the consequence rating:


Risk Acceptance Criteria

Finding Rating for each audit issue was based on the following table:


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