Under the Local Government Amendment (Auditing) Act 2017 (Amendment Act), proclaimed in October 2017, a staged program commenced for local government annual financial audits to transition to the Auditor General as and when existing audit contracts between audit firms and entities expire. The Office of the Auditor General (OAG) was responsible for 112 audits for 2018-19, the second year of the transition. All financial audits will fall under the OAG by 2020-21.

OAG audit staff performed 13 of the 112 financial audits, with the others performed by contract audit firms on our behalf. Our oversight of these audits, coupled with in-house OAG audits, has provided our staff with valuable insight and understanding of the sector. We will be increasing the number of audits performed using in-house audit teams, however we anticipate a large proportion will continue to be performed by contract audit firms, under our oversight. These will be periodically re-tendered to provide open and fair competition, and to ensure value for money.

We are committed to supporting the regions and, where possible and appropriate, we use local financial auditing professionals in regional areas.

Over $39.6 billion of total assets were audited for the 106 entities. Their combined total operating revenue was $3.6 billion, of which rates contributed $2 billion (56%) and fees and charges $945 million (27%). The combined total operating expenditure was $3.6 billion.

Annual financial reporting framework, timeline and audit readiness

Reporting framework and content

Each entity is required to prepare an annual financial report that includes:

• a Statement of Financial Position, Statement of Comprehensive Income by Nature or Type, Statement of Comprehensive Income by Program, Statement of Changes in Equity and Statement of Cash Flows
• a Rate Setting Statement
• 7 financial ratios required under section 50(1) of the Local Government (Financial Management) Regulations 1996 (LG Financial Management Regulations), to be reported in the Notes to the annual financial report.

The quantity of detail that is being reported is onerous and exceeds that reported by most WA State government entities and includes details not included by local governments in other jurisdictions. On page 26 we have recommended that DLGSC re-assess the amount of detail in annual financial reports.

Financial reporting timeliness

Under section 6.4(3) of the Local Government Act 1995 (LG Act), entities must submit their annual financial reports for audit to the OAG by 30 September. (See appendix 3 on page 37 for full timeline.) Many of the entities we audited for 2018-19 submitted their financial reports for audit in advance of this deadline. However, 16 of the 112 we audited did not meet the statutory deadline, and sought approval from the Minister to instead submit for audit by various deadlines, the latest being 30 November. There were a variety of reasons for these delays, including staffing shortages in some entities and a few instances of illness.

We completed 96 of the audits by 31 December 2019 as required by section 7.9 of the LG Act. The main reasons for delays finalising the audits included the abovementioned late submission by entities, problems with asset valuations that entities only received after year end and which required various clarifications, insufficient evidence to support the financial report, and numerous errors requiring correction.

Overall, while there are some entities whose financial management procedures are sound and their teams are well prepared for audit, we found the quality and timeliness of information provided for local government audit purposes is lower than for the State public sector.

By 3 March 2020 we had completed a further 10 of the 16 audits that were incomplete at 31 December 2019.