The 2018-19 financial year marked the second year of a 4-year transition of local government financial auditing to the Office of the Auditor General, following proclamation of the Local Government Amendment (Auditing) Act 2017. We performed the 2018-19 audits for 112 of the State’s 148 local government entities, of which 106 were completed by 3 March 2020 and are included in this report.
In addition to summarising the results of the audits for Parliament, I have taken the opportunity to provide Parliament and the local government sector with further insight to our approach for performing financial audits. We have also highlighted opportunities for streamlining accounting practices and the preparation of annual financial reports and their audit, with a view to reducing annual reporting costs.
Five auditor’s reports included a qualified opinion on the financial report (page 10). Despite this low number of qualifications, there is little room for complacency, as a clear audit opinion is the minimum we should all expect. Although some entities had good audit outcomes, it is concerning that we reported 93 material matters of non-compliance in the auditor’s reports of 48 entities, and 823 significant or moderate weaknesses in financial management and information systems controls in our management letters. Some of these were unresolved from the previous year. If not addressed, these omissions and exposures increase the risk of financial loss, error or fraud.
Most entities need to implement a more robust quality review process to ensure that their financial reports are complete and accurate and the working papers adequately support the figures in their financial reports. Many entities also need to maintain an effective internal audit function, supported by an active audit committee, to improve the level of accountability and integrity of reporting and operational activities.
As we have taken on more financial audits for the sector, we have actively engaged with key governance officers and operational staff in local government entities. We have found this very rewarding. In particular, attending zone meetings and participating in audit entrance and exit meetings of our local government clients has enabled valuable exchanges of information on audit expectations and matters of accountability in the sector. In addition to undertaking our audit work, fostering an open dialogue in this manner assists my office to deliver enhanced audit outcomes for the sector and Parliament.
I am however concerned that a small number of local governments do not recognise the need for council to be involved with the external audit. A few have attempted to avoid councillors being consulted by our auditors. Australian Auditing Standards require auditors to consider whether any matters need to be communicated with management, those charged with governance, or others. In some instances, it is essential that I and my staff liaise with council or council members and we will continue to do so, to avoid a restriction on the scope of the audit, and in recognition that under section 2.7 of the Local Government Act 1995 the role of the council is to govern.
I am encouraged that the sector is embracing changes suggested during our audits. I also support future action to streamline preparation for changes in accounting standards and policies, particularly those relating to the valuation of assets.
I wish to thank my staff, our contract auditors, and staff in the local government entities we audited who contributed and assisted during our second year of transition into the annual financial audits of local government entities.