This report summarises the results of 42 local government entities’ annual financial report audits completed by my Office to date for the year ending 30 June 2018, following proclamation of the Local Government Amendment (Auditing) Act 2017. This was the first of a 4-year transition of local government financial auditing to the Office of the Auditor General.
In addition to reporting the results of the audits to Parliament, this report is intended to provide further insight for Parliament and the local government sector to our approach for performing and reporting on financial audits.
I recognise that we, together with the sector, have only just begun our journey in this new era of local government financial auditing. The 42 audits completed in 2017-18 represent approximately one third of all WA local government entity audits.
During our audits, in addition to routine but important audit findings, we have made other observations about what we found is working well in the sector, where improvements may be considered and where opportunities exist. One such stark governance-related opportunity relates to audit committees.
Audit committees play a key role in assisting boards, councils and chief executive officers with financial management, control, and reporting. In this report, I have included a few preliminary observations about the role of audit committees in the annual reporting and audit process. I recognise the challenges regional local government entities may have in appointing independent members with financial or audit expertise, and intend to report more broadly on the role of audit committees and internal audit in the future.
In our first year auditing local government entities, we were concerned that some local government staff considered an audit finding not worthy of formal reporting if the control weakness did not result in a breach of legislation or misstatement. My Office reports weaknesses in internal controls and governance, so that they can be remedied before they potentially lead to non-compliance with legislation including misstatement due to fraud or error.
We also identified the need for more emphasis on auditor independence. We noted it was often common practice for auditors to perform other work for local government entities, in addition to the annual financial audit. As this can impair an auditor’s independence, we have tightened controls around our contracted local government auditors performing this work, as we do for state government, while recognising practical challenges – such as limited availability of alternate skills in some regional areas.
I wish to thank my staff, our contract auditors, and staff in the local government entities we audited who contributed and assisted during our first year of transition into the sector and our first annual financial audits.
I am looking forward to working with the sector over the coming years to deliver high quality audits that contribute to enhancing the financial management and performance of local governments for the benefit of the WA community.