- What is the Auditor General’s mandate regarding local government?
- Why has the Auditor General been appointed as the auditor of local government entities?
- When did the Auditor General’s appointment as local government auditor start?
- Does the OAG have the expertise to audit local government entities?
- How will the Auditor General report the results of financial and performance audits of local government entities?
- Will this mean fewer audits of state government entities?
- Who audits the Auditor General?
- Can I subscribe to receive reports produced by the Auditor General?
- Can we make management letters public?
- What is an ‘audit report’ in relation to a local government financial audit and a local government performance audit?
- What is a ‘significant matter’ in an audit report?
Complaints, referrals and enquiries
- Can community members make a complaint about a local government entity to the Auditor General?
- Can a public official make a complaint about a local government entity to the Auditor General?
- How can I make a complaint about a local government entity?
- Can I make a complaint about the OAG or its staff?
- What are financial audits?
- How will the Auditor General improve the quality of local government financial audits?
- Will your audit fees be much more than local governments are currently paying?
- How will the OAG determine fees for local government entity audits?
- Will all financial audits be conducted in house? Does the OAG have the capacity to take on all WA local government entities?
- Will my current auditor continue to audit my local government?
- What are the benefits of contracting out?
- Will the OAG or its contract auditors be able to do other ‘non-audit’ work for local governments?
- Will the OAG or its contract auditors be able to provide advice and training to local governments that they are auditing?
- Who pays for the financial audit?
- What are performance audits and why are they important?
- How many performance audits of local governments would you want to do each year?
- Will all local governments be subject to a performance audit?
- Who decides performance audit topics, and how?
- How does the OAG ensure performance audits are fair and balanced?
- What performance audits does the OAG have planned for local governments?
- Who pays for performance audits?
- When will we find out if our local government entity is being audited as part of a performance audit?
The Auditor General has been given the mandate to:
- audit the annual financial reports of WA’s 148 local governments and regional councils (local government entities)
- conduct performance audits of local government entities
- perform supplementary audits requested by the Minister for Local Government
- report to Parliament on the results of financial and performance audits
Parliament expects this will raise the standards of accountability for local government entities to a level more consistent with state government entities. This follows recommendations by the Public Accounts Committee and the Corruption and Crime Commission.
The change brings Western Australia in line with most other Australian jurisdictions and New Zealand.
The Local Government Amendment (Auditing) Act 2017 was proclaimed on 28 October 2017.
The mandate to conduct performance audits started on this date, however there is a staged transition approach for financial audits.
The Auditor General is conducting the 2017-18 financial audits for the 46 local government entities that did not have an audit contract in place on proclamation. The Auditor General will then gradually take responsibility for the remaining local government financial audits as their existing audit contracts expire. By the financial year 2020-21, all local governments will be audited by the Auditor General, regardless of whether or not their existing audit contracts have expired.
Our Office is made up of highly trained, professional, qualified and experienced auditors and support staff who are well placed to perform local government financial and performance audits. The expertise our staff have developed auditing the state public sector is also very relevant to local government and puts us in a strong position to add value to the local government sector.
We have an ongoing comprehensive and highly valued professional development program for staff which includes specific local government training and awareness topics.
We currently contract out about 35% of our public sector financial audits to private sector audit firms and therefore have the experience to contract manage outsourced local government financial audits.
Many of our auditors have direct local government experience from previous jobs and from working on OAG financial and performance audits that crossed into local government activity. These audits include: Pilbara Underground Power Project; Royalties for Regions – are benefits being realised?; Safe and Viable Cycling in the Perth Metropolitan Area and Western Australian Waste Strategy: Rethinking Waste.
How will the Auditor General report the results of financial and performance audits of local government entities?
The results of individual local government financial audits are reported to the Mayor/President/Chair and CEO of the local government. The entity is required to publish the auditor’s report with their annual financial report on its website. If the Auditor General has reported other significant matters, then the local government is required to report the action it has taken about the matters to the Minister for Local Government and publish a copy of that report on its website.
We plan to report to Parliament on the results of all local government financial audits in a similar way to our current reporting for public sector financial audits (see our latest annual Audit Results Report). The report will include details of the audits completed, information about significant accounting, control, and information technology issues identified, and relevant financial ratios and other statistics.
The results of performance audits are reported in a similar way to our performance audits of the public sector. Our Local Government Procurement report is an example of how the results of our performance audits are presented to Parliament and local government entities.
No, we will continue to conduct annual financial audits of all state government entities.
Many people do! We are subject to various internal and external review processes which we value as they provide us with assurance that our processes are effective, efficient and evolving. You can view our Transparency Report and Annual Report on our website. These documents give a comprehensive overview of the types of assurance, transparency and accountability checks and balances we have in place for our own business and activities.
Yes, sign up here to be notified by email when we table a report in Parliament.
Sometimes during our planning or interim audit visit, we issue interim management letters to the CEO and mayor/president/chairperson, to provide them early advice of our audit findings, to enable them to take timely remedial action.
We regard these as working documents until we issue them formally to the mayor, president or chairperson, the CEO and the Minister for Local Government as part of our final report. They are not suitable for other purposes.
As such, local governments should not make interim management letters public unless specific urgent needs warrant their earlier release.
What is an ‘audit report’ in relation to a local government financial audit and a local government performance audit?
It is important to know what an “audit report” is because LG entities have obligations under the Local Government Act 1995 relating to an “audit report”. Section 7.12A requires LG entities to examine an audit report it has received and take action on any matters raised in the audit report, if required.
If the auditor has identified any matters as significant, the local government must be prepare a report stating what action will be taken with respect to those matters. A copy of this report must be sent to the Minister for Local Government and published on the local government’s website.
For financial audits, an “audit report” includes:
- the independent auditor’s report
- interim and final management letters
For performance audits, an “audit report” includes the reports tabled in Parliament for broad and narrow scope performance audits, and focus area audits.
When conducting performance audits, we may send various documents to a local government including management letters, emerging or indicative findings, and summary of findings. We have determined that it is a local government’s responsibility to decide whether these documents are an “audit report” for the purposes of the Local Government Act 1995.
A significant matter is a matter clearly identified by the auditor as significant in an audit report (e.g. a management letter).
For the independent auditor’s report, a significant matter includes:
- a matter included in the ‘Basis for Qualified Opinion’ section
- a matter (i.e. a deficiency) included in the ‘Report on Other Legal and Regulatory Requirements’ section.
For performance audit reports tabled in Parliament, a significant matter includes the recommendations in the reports. We identify recommendations as significant matters by including the following paragraph in these reports.
Under section 7.12A of the Local Government Act 1995, sampled LG entities are required to prepare an action plan addressing significant matters arising from the audit relevant to their entity. This action plan should be submitted to the Minister for Local Government within 3 months of the audit report being received by the local government, and published on the LG entity’s website within 14 days after giving the action plan to the Minister.
Complaints, referrals and enquiries
The Auditor General welcomes feedback from the community about local governments in relation to our role in auditing local governments’ annual financial reports or conducting performance audits. However, the Auditor General does not report back to members of the public on the outcomes of any investigation or other work on complaints. Therefore, individual concerns about one-off issues are generally better directed to other more appropriate integrity agencies such as the WA Ombudsman, Public Sector Commission or the Corruption and Crime Commission.
You can find information about making a complaint and our contact details here.
A public official can make a complaint in the same way as a member of the general public, which includes the option of making a public interest disclosure under the Public Interest Disclosure Act 2003. This Act sets in place a system to encourage people to report serious wrongdoing without fear of disciplinary action, dismissal or being sued for defamation or breach of confidence.
The Office of the Auditor General is the appropriate authority to receive public interest disclosures that relate to substantial unauthorised or irregular use of, or substantial mismanagement of, public resources. For other kinds of public interest disclosures the OAG is not the correct authority. More information about making a public interest disclosure is available from the Public Sector Commission website. Details about making a disclosure to the Auditor General are here.
In the first instance you should always direct your complaint to the local government entity concerned. Their websites usually have details on how to make a complaint.
There are also other complaint handling agencies that may be able to better deal with your complaint:
- WA Ombudsman investigates complaints about the decision making of WA public authorities including local governments, State government agencies, statutory authorities and public universities
- Corruption and Crime Commission investigates allegations of ‘serious’ misconduct by public officers, including those in local government
- Public Sector Commission deals with allegations of ‘minor’ misconduct including local governments
- Department of Local Government, Sport and Cultural Industries investigates complaints about local government non-compliance with the Local Government Act and regulations, and complaints about members of council.
While we hope you never have to make a complaint about us, we certainly welcome your views even if they are critical of us or our staff. Details about how to submit a complaint are here. You can be assured that we take all complaints against us seriously and have a comprehensive complaint management policy in place to act on these.
Financial audit is the audit of an entity’s financial statements and associated audits. For state government entities a financial audit includes the audit of their financial statements and where applicable their controls and key performance indicators. For local government entities a financial audit refers to the audit of their annual financial report and any other matters required by the local government audit regulations.
The Auditor General will be conducting a much broader financial audit than currently received by most local government entities. Our audits will provide greater transparency about controls, probity and governance matters.
Previously, external auditors were engaged by local government entities following a tender process with the lowest quote generally the successful tenderer. The decision on the scope and level of assurance provided by the audit often came down to the cost of the audit. This has led to varying levels of audit with some local government entities traditionally choosing to go for a low cost minimum audit.
We don’t do minimum audits. The OAG will apply the same high level of rigour across the entire local government sector as we do currently for the state government sector.
Based on our research of other States, we expect audit fees to be considerably higher than they currently are. This is primarily because the Auditor General will be conducting a much broader financial audit than currently received by most local government entities. Our audits will give assurance on financial statements and provide greater transparency about financial controls, probity and governance matters.
We will discuss our audit fee with relevant local governments as soon as possible, prior to commencing the annual financial audit.
Quite simply our fees are set purely to recoup the full cost of conducting a financial audit. The fee is based on the staff hours used on the audit plus any directly related costs such as contract fees and travel expenses.
Will all financial audits be conducted in house? Does the OAG have the capacity to take on all WA local government entities?
The majority of local government financial audits will be contracted out to accredited audit firms with oversight and signing by the Auditor General.
Auditors General outsourcing audits is common practice across jurisdictions and is something we currently do for state government entity audits. Our contract management processes will ensure that outsourced audits are efficient and cost effective and meet the OAG audit quality standards.
For the 46 local governments that we are auditing for 2017-18, we have determined if their audit will be done in-house by the OAG or outsourced based on considerations such as risk, location and size.
In most cases we have appointed their previous audit firm for the 1st year, if they met certain quality criteria. In the 2nd year, the audit will go to tender. All tendering firms must be accredited with us. We have been in contact with existing audit firms to discuss these arrangements.
We have been contracting out audits for many years. The many benefits for the OAG and our auditees, include:
- allowing us to better respond to the risks and needs of our clients
- partnering with accredited audit firms to develop innovative audit practices
- accessing specialist knowledge or skills we might not have or is costly to maintain
- learning from accredited audit firms to improve our audit processes, quality and reporting
- providing a mechanism for us to benchmark our cost effectiveness, audit processes, quality and reporting
- allowing us to complete and report on all audits in a timely manner.
For ‘other work’ at local governments including internal audit, consultancy, preparation of financial statements, or advice about specific transactions, the general rule is that, for independence reasons the auditors cannot audit their own work. We recognise there may be instances in regional areas with limited access to other accounting firms in that area, where our audit teams may need to provide contained additional guidance. In these instances, we will need to apply additional safeguards to ensure the independence of those staff/contract firms performing the OAG’s audit.
Contract audit firms will generally be able to do other statutory/regulatory audit tasks such as grant acquittal certifications, including Royalties for Regions certifications. Using the same audit team typically has efficiencies, although it will not be mandatory for local governments to use our staff or contractors for that certification work.
Will the OAG or its contract auditors be able to provide advice and training to local governments that they are auditing?
Contract audit firms performing financial audits on our behalf for state government entities typically offer general training in accounting and other matters. Some also provide general guidance such as model financial statement formats. Our approach will be no different for our local government entity audits. Contract firms working for the OAG will be able to provide general advice and guidance, including those that they are auditing on our behalf. However, to maintain independence, our OAG staff and contractors will not provide detailed advice on how to perform a financial/accounting transaction that is specific to the particular local government entity they are auditing.
Under the Local Government Amendment (Auditing) Act 2017, the Auditor General is to determine the amount of audit fees for financial audits. The OAG will invoice the local government who will pay the audit fees direct to the OAG. This arrangement is similar to the current practice for state government entities. The fees will be based on cost recovery. If a contract audit firm is used, the contract will be between the firm and the OAG, so the OAG will pay the contract fee to the firm.
The role of the Auditor General is not simply about ensuring public money is spent according to the rules – it is also about ensuring that the community receives value for its tax dollars. Our performance audits primarily focus on the effective and efficient management and operation of public sector programs and activities. Topics are selected by the Auditor General following a comprehensive process which may also include requests for audits from Parliament, the government or the broader community.
We table the results of our performance audits in Parliament and publish them on our website. These reports often receive media attention and are regularly referred to in parliamentary debate. This increases transparency and accountability of public sector activities and encourages all public sector entities (not just those audited) to pay attention to and act on the findings and recommendations of these reports.
Unlike financial audits, which are paid for by each entity to cover the cost of doing the audit, performance audits are funded by Parliamentary appropriation. The number and size of performance audits is therefore determined by the level of appropriation received and the priority given to these by Parliament. We publish our audit program on our website and this will be updated as local government audit topics are determined.
The Auditor General has a comprehensive topic selection process in place to choose audit topics. While we would eventually like to involve every local government in a performance audit, this is not possible in the short term and may not actually be the most effective use of our resources. In choosing topics we consider factors such as risk, materiality and impact, which may lead to some local governments being involved in multiple audit topics while others will be rarely involved.
Importantly, the findings and recommendations of our local government performance audits will often be applicable across the sector, and not just to those subject to the audit.
The Auditor General decides the performance audit topics, and the entities to be audited. The OAG has a comprehensive topic selection process which you can view here.
You can contribute to our list of topics by suggesting new ones here.
The Office of the Auditor General’s Audit Practice Statement provides a detailed description of the principles we apply in conducting our audits.
The 5 key principles that guide our audit work are:
- all audits are conducted in accordance with auditing standards
- the highest standards of ethical and personal behaviour are demonstrated
- all audits are approached in a fair and constructive way
- audits are conducted and reported in an impartial manner
- matters of significance arising from audits are reported to Parliament.
We work closely with the entities we are auditing and have a ‘no surprises’ approach, which means they are made aware of potential audit findings as our work progresses and they are given the opportunity to respond and comment on the report before it is finalised. This approach helps ensure we end up with a report that is fair, balanced and accurate.
Our audit program is available here and is regularly updated with audit topics as they are approved by the Auditor General.
Unlike financial audits, which are paid for by each entity to cover the cost of doing the audit, performance audits are funded by Parliamentary appropriation.
When will we find out if our local government entity is being audited as part of a performance audit?
Audit topics that have been approved through our topic selection process and are likely to commence as audits in the next 12 months will be listed on our audit program. Entities selected to be included in the audit will be contacted directly at the start of the audit process.