This Audit Results Report contains findings from the annual financial audits of local government entities (LGs) that we audited for the 2017-18 financial year.

Following proclamation of the Local Government Amendment (Auditing) Act 2017 (Amendment Act), the Auditor General assumed responsibility for the audits of the 2017-18 annual financial reports of 46 LGs. The annual financial audits of remaining LGs are due to transition to the Auditor General by 2021.

Under the Amendment Act, the Office of the Auditor General (OAG) also assumed responsibility for performance audits of the local government sector. These audits are reported in separate reports to Parliament when they are completed.

Key findings

• We issued auditor’s reports for 42 LGs by 1 March 2019 relating to their 2017-18 financial year.
• All but 2 auditor’s reports included clear (unqualified) audit opinions on the financial reports. We issued qualified auditor’s reports on the financial reports of the Shire of Brookton and the Town of Cambridge.
• We reported 36 material matters of non-compliance with the Local Government Act 1995, Local Government (Financial Management) Regulations 1996, or other written law in 24 of our auditor’s reports.
• In addition to material matters of non-compliance reported in auditor’s reports, we reported 290 financial management and control matters of varying significance to management in our management letters.
• In accordance with the Local Government (Audit) Regulations 1996, we reported adverse trends in the financial position of 24 LGs.
• In our first year of performing annual financial audits in the local government sector, we have made some general observations and included these in the report, with a view to improving audit outcomes in the future. These relate mainly to audit committees and reporting practices.
• The report includes details of our response, in the context of auditor independence, to existing practices where audit firms performed other work at local governments they were auditing.
• We detail our concerns that valuation methodologies used by various valuers to fair value property, plant, equipment and infrastructure, often differ significantly, potentially affecting comparability of asset values across local governments.
• We recommend that LGs make timely preparations for upcoming changes to Australian Accounting Standards and a local government regulation.

Recommendations

1. LGs should ensure they maintain the integrity of their financial control environment by:
   a. periodically reviewing and updating all financial, asset, human resources, governance, information systems and other management policies and procedures, and communicating these to staff.
   b. conducting ongoing reviews and improvement of internal control systems in response to regular risk assessments.
   c. regularly monitoring compliance with relevant legislation.
   d. promptly addressing control weaknesses brought to their attention by our audits.
2. In addition to compliance with legislation, management should promote a culture of applying better practice financial management and complying with internal policies.
3. An in-depth audit exit meeting should be held with audit committees, in advance of council meetings. As far as is practicable, the audit committee should include a few council members, rather than the entire council.
4. An audit entrance meeting should be held with the audit committee.
5. Audit exit meetings should provide the auditor the opportunity to highlight the key audit issues, in a structured manner, and the CEO adequate opportunity to comment.
6. LGs should not make interim audit findings public until they are received as part of our Audit Report on completion of the audit, unless specific urgent needs warrant earlier release.
7. The Department of Local Government, Sport and Cultural Industries (the Department) should re-assess the potential advantages if LGs are required to report equipment assets using the cost model.
8. LGs should robustly assess the assumptions and methodology of their valuers, in particular the approach for valuing land assets with restricted use.
9. LGs and the Department should monitor the progress of the Australian Accounting Standards Board and International Public Sector Accounting Standards Board public sector fair value projects.
10. LGs should continue to make timely preparations for implementation of the upcoming accounting standards changes, and the new regulation requiring assets with a value at acquisition below $5,000 to be expensed.