Local Government Briefing for Audit, Risk and Improvement - - PowerPoint PPT Presentation

Local Government Briefing

for Audit, Risk and Improvement Committee Chairs

20 April 2018

Agenda

Welcome by the Deputy Auditor-General Financial Audit report to Parliament Discussion and comment BREAK 11.15am ICAC focus on Local Government Information Technology risks and focus areas Performance Audit reports to Parliament Closing by the Auditor-General LUNCH 12.30pm

Deputy Auditor-General

Ian Goodwin

Welcome

Financial Audit Report to Parliament

Steven Martin, Assistant Auditor-General

Council data visualisation

Context for our insights

• Each council has unique characteristics such as size,

location, range of services

• A ‘one size fits all approach’ may not be appropriate
• Audits process may not detect everything
• Internal control environment, risk management procedures

and governance structures may need to differ.

Council spending on services by function

Quality of financial reporting

• Modified audit opinions in 2016-17 for three councils
• Modified audit opinions in 2015-16 for one council and one

water authority

• One emphasis of matter in the unmodified audit opinion
• Unmodified opinions for the remaining councils, however
• 33 material prior period errors across 22 councils
• 39 significant matters in 29 councils.

Quality of financial reporting

2 4 6 8 10 12 14 16 Other Accounting for assets not controlled by councils First time recognition of assets Valuation methodology for community land and land under roads did not consider restrictions on the use of these assets

Number of prior period errors Material prior period errors identified across the 2016–17 financial audits

Quality of financial reporting

2 4 6 8 10 12

Other Incorrect revenue recognition Internal control deficiencies Asset accounting issues Valuation of community land and land under roads Valuation of infrastructure, property, plant and equipment Number of significant matters

Significant matters reported across the 2016–17 financial audits

Quality of financial reporting

• The financial statements close process can improve
• Our report includes better practice guidance
• ARIC’s role in reviewing financial statements
• OLG needs to release key guidance earlier in the year.

Timeliness of financial reporting

10 20 30 40 50 60 70 80

Number of councils

Week ending

Timeliness of financial reports lodgement with OLG

Number of councils

Early close procedures

Complete infrastructure, property plant and equipment valuations Prepare proforma financial statements and associated disclosures Prepare variance analysis and meaningful explanations for movements in financial balances Perform key account reconciliations Assess the impact of material, complex and one-off significant transactions Resolved prior year audit issues Assess the impact of new and revised accounting standards Review of financial statements and processes

Financial performance and sustainability

Operating revenue measures

10 20 30 40 50 60 Metropolitan Regional Rural County Number of councils

Operating performance

Councils did not meet benchmark Councils met benchmark 10 20 30 40 50 60 Metropolitan Regional Rural County Number of councils

Own source operating revenue

Councils did not meet benchmark Councils met benchmark

Revenue and expenses

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Metropolitan Regional Rural County % of revenue

Sources of council revenue

Rates and annual charges User charges and fees Grants and contributions Other revenue

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Metropolitan Regional Rural County % of expenses

Categories of council expenses

Employee benefits Materials and contracts Depreciation and amortisation Other expenses Borrowing costs

Liquidity and working capital measures

Liquidity and working capital measures

• All but three councils met the unrestricted current ratio
• All but two councils met the debt service cover ratio.

Asset management measures

• Asset indicators question whether councils’ spend enough on

renewing and maintaining infrastructure assets

• Seventy councils do not meet OLG’s buildings and infrastructure

renewals ratio benchmark

• Eighty-four councils do not meet OLG’s infrastructure backlog

ratio benchmark

• Seventy-one councils do not meet OLG’s asset maintenance

ratio benchmark

• Councils may need to review their asset management plans.

Asset management

Asset management findings

High-risk issues related to:

• accuracy of asset registers
• restricted assets
• asset valuations.

Land assets overstated by $12.1 billion Councils with no asset management strategy, policy and plan

Asset useful lives

Unrecorded assets

Governance and internal controls

7 1 4 5 10 9 89 70 100 97 153 201 58 55 23 28 55 42 50 100 150 200 250 Financial accounting Payroll Governance Purchases and payables Asset practices Information technology

Governance and internal control deficiencies reported in management letters

High risk (36) Moderate risk (710) Low risk (261)

Audit committees and internal audit

Other governance matters

• Missing or out of date policies and procedures
• No legislative compliance framework, policy or register
• Opportunities to improve risk management
• Council entities.

Discussion, comment, questions

BREAK

Independent Commission Against Corruption (ICAC)

Information Technology – risks and focus areas

IT findings

• Nine high risk issues reported
• Findings in two broad areas:
• access to IT systems
• IT governance
• Increased risk of fraud and error.

User access controls

Effective user access control involves the following good practice: Clear policies and procedures. Formal approval to establish and modify user accounts. Removal of access when no longer required Regular review of user access Password parameters in line with good practice Clear records of user access

Audits found 107 issues across 56 councils Staff with access beyond their role requirements

Privileged access controls

• Ability to change key system configurations
• Wide access to system data, files and accounts
• Audits found 86 issues across 64 councils:
• staff and third-party contractors with unmonitored access
• no logging and/or review of highly privileged access
• sharing of highly privileged user accounts.

User developed applications

• Computing applications, tools and processes developed or

managed outside IT administration

• There are reasons why these tools are used
• Mitigating controls
• Audits found:
• councils using spreadsheets without appropriate controls
• councils where non-IT staff could modify financial

databases.

IT governance

• Audits found:
• councils without an IT strategy

and IT operational plan

• councils without an adequate

IT security policy

• councils without adequate

back up, disaster recovery and business continuity arrangements.

Performance Audit

Our first three performance audits in local government

Three Topics

• Fraud control

Due for public release in May 2018

• Shared services

Due for public release in June 2018

Reporting on service delivery

Key Findings

• Need greater emphasis on reporting

efficiency and effectiveness of services

• Report performance over time
• Use targets related to service objectives
• IP&R Framework could be improved to

support better reporting

• Consolidating council reporting to state

agencies would support better reporting.

Reporting on service delivery

Recommendations OLG should, by mid-2018:

• issue additional guidance on good practice in reporting
• clearer integration of all reports required by the IP&R Framework
• consolidate reporting by councils to state agencies
• work with rural councils to develop their reporting capability
• define reporting terms to encourage consistency
• develop a Performance Management Framework to deliver sector

wide reporting.

Performance audits recently released

• f interest to councils

Performance audit program 2018-19

Performance audits underway

• Risk management culture and capability
• Grants to non-government schools
• Regional Assistance Programs
• Property asset utilisation
• Ausgrid: Unsolicited proposal to acquire 50.4% interest in Ausgrid
• Health Roster Benefits Realisation

Performance audit program 2018-19

Performance audits underway

• Regulation of Waste and Water
• Assessing Progress of Premier’s and State Priorities (including

Premier’s Implementation Unit)

• Newcastle Urban Transformation and Transport Program
• Antisocial behaviour in social housing

Performance audit program 2018-19

Performance audits underway

• Matching Skills training with market need
• Planning for New and Revitalised Communities
• Mobile Speed Cameras.

Currently developing our audit program for 2019-20 and 2020-21.

Auditor-General

Margaret Crawford

Closing

Better practice and other resources

Audit Office Better Practice Guides- covering procurement , contract management, governance, fraud control and risk management.

https://www.audit.nsw.gov.au/publications/better-practice-guides

Treasury Policies and guidance

• TC18-02 NSW Fraud and Corruption Control Policy
• TPP17-06 Certifying the effectiveness of internal controls over financial information
• TPP 15-03 Internal Audit and Risk Management Policy for NSW Public Sector
• TPP 12-03 variance toolkits for risk management

https://www.treasury.nsw.gov.au/documents-resources/documents-library

Better practice and other resources

Local Government Victoria Audit Committee Good Practice Guide

https://www.localgovernment.vic.gov.au/__data/assets/pdf_file/0021/84081/Audit_ Committees_Guidelines-A-guide-to-good-practive-for-local-government.pdf