Draft Final Report on the Operation of Council Audit Committees Trevor Starr, StarrSolutions Management and Consulting

1. Draft Final Report on the Operation of Council Audit CommitteesTrevor Starr, StarrSolutions Management and Consulting DME

2. Purpose of today • Review draft final report • Workshop further feedback • Collate responses • Incorporate into Final Report with written responses already received DME

3. Legislative requirements • Council must have an Audit Committee with membership that: • May include persons not members of the council • Cannot include Council employees • May include members of an audit committee of another council • Must be determined in accordance with the regulations DME

4. Functions of an Audit Committee • reviewing “annual” financial statements to ensure that they present fairly the state of affairs of the council • Proposing/providing information relevant to a review of the council’s strategic management plans or annual business plan • Proposing, and reviewing, the exercise of powers under section 130A DME

5. Functions of an Audit Committee • Undertaking an audit committee function for subsidiaries which have not been exempt from the requirement to have an audit committee • liaising with the Council’s “external” auditor • reviewing the adequacy of the accounting, internal control, reporting and other financial management systems and practices of the council on a regular basis. DME

6. Responsibilities • Established under S41. Conduct its business as for Councils/Council Committees • Emphasis on review of • Financial statements • Adequacy of accounting, internal control, financial system and practices of council DME

7. LGA Review • Self assessment process designed to • Assess effectiveness of the current legislation from Council perspective • Seek information as to whether Councils are fully meeting the requirements of the legislation • Assess usefulness of information papers prepared by the LGA to assist Councils • Obtain perspective on how audit committees are currently operating • Gain information on effectiveness of audit committees in improving governance standards and increasing accountability (of Council operations) to the community DME

8. Methodology • Initial desktop evaluation of Council activity via Council websites to gain feel for • Meeting frequency • Agenda content • Interface between Committee and external auditor • Evidence of work program • Evidence of progress DME

9. Methodology • Questionnaires developed for • CEOs • Council External Auditors • Audit Committee Chairs • Forwarded sequentially • Responses recorded in excel and summarised DME

10. Methodology • Summarised in percentage terms • Scatter diagrams to indicated where most Councils clustered on scale • Significant degree of consistency across data collection • Comparisons of responses by group DME

11. Comparing responses DME

12. DME

13. Question 9On a scale of 1-10 (1 being the lowest value) how would you assess the value of the Audit Committee’s work on reviewing the adequacy of internal controls and risk management systems? DME

14. Usefulness of Information DME

15. DME

16. Conclusions • some lag between requirements for audit committees and action on the part of councils. • from an operational perspective some councils have relied on the LGA papers as a stating or reference point • the issues of independent chairs and members has been the subject of comment from many councils DME

17. Conclusions (cont) • internal audit and risk management in particular remain issues for some councils • audit committee reporting appears to be an area that requires clarification • Councils are moving at different rates in achieving legislative requirements DME

18. Recommendation 1 Timing • That the LGA support Councils to meet the requirements of the legislation by 30 June, 2010 and identify any areas of concern in meeting this timeframe. DME

19. Recommendation 3 Committee membership structures • That the LGA discuss with Local Government Members the concept of “best practice for Audit Committees” being a majority of independent members.  • That the issue of Independent Chairs be the subject of discussion at the forthcoming workshop for Audit Committee Chairs and subsequently consulted with Councils.   DME

20. Recommendation 4 Continuity of members of Audit Committees • That the appointments to the Audit Committee be for the same period as Council, i.e. 4 years, but preferably not coincide with Council elections DME

21. Recommendation 2 Inadequate resourcing • That the LGA with support from the Office of State/Local Government Relations continues to provide assistance by way of information papers and model policies and procedures to assist Councils in fully meeting the requirements of the legislation DME

22. Recommendation 5 Resource papers and model policies • That the process of developing resource papers for outstanding issues of Audit Committees be continued and those Councils identified as “best practice” be encouraged to make their policies, procedures and practices available to other Councils DME

23. Recommendation 6 Resourcing • That the LGA in conjunction with the Office of State/Local Government Relations give consideration to provision of resources for regional groupings of Councils to: • provide specialist advice from an approved pool of Consultants or Council Officers • assist regional focus groups to address particular issues e.g. risk management for coastal Councils • promote the use of “buddy systems” whereby Councils experiencing difficulties are linked to another Council with particular skills and experience  DME

24. Recommendation 7 Meeting frequency and cycles • That consideration be given in the Regulations of the Local Government Act to mandate Audit Committees meet on a bi-monthly basis and the LGA explore the concept of model committee structures to eliminate overlap between Audit Committees and Finance/Administration/Governance Committees DME

25. Recommendation 8 Training and Development of Audit Committees and Council Staff • That consideration be given to assisting Councils experiencing difficulty in meeting outstanding requirements of the legislation by provision of targeted training programs and specialist assistance to staff of those Councils and facilitation of workshops for Audit Committee members.  DME

26. Recommendation 8 Training and Development of Audit Committees and Council Staff (cont) • That the LGA continue the development and release of papers on – Internal control principles and processes Governance and Risk Management, and • That a training program be established for newly appointed Audit Committee Members and new Councillors following the November 2010 Council elections. DME

27. Recommendation 9 Audit Committee Reporting • That the LGA consider development of a standard for Audit Committee reporting to be adopted by Councils for their Annual Reports.  • That the form and regularity of reporting by Audit Committees be canvassed at the forthcoming workshop for Audit Committee Chairs and subsequently consulted with Councils. DME

28. Recommendation 10 CEO Statement for Financial Statements • That the CEO be required to provide a declaration in the published financial statements that the Audit Committee has been provided with appropriate information for it to discharge its responsibilities under the Local Government Act, that the recommendations of the Audit Committee have been referred to Council for determination. Further that the Council is sustainable, able to meet its service levels in an efficient and effective manner DME

29. Recommendation 11 Responsibilities of External Auditors • That the LGA review LGA Financial Sustainability Information Papers 3, 14 and 19 and recommend to the LGA Executive changes that reflect the progress made by Councils and inclusion of continuous improvement provisions DME

30. Workshop discussion • Any further feedback or suggested amendments to recommendations • What additional or alternative questions would be appropriate in a self assessment review undertaken 2 years from now DME