Audit NZ report of Horowhenua District Council highlights continuing concerns

Horowhenua District Council lost $1.86 million on the sale of the pensioner housing and 1.1 hectare of bare land to land and property dealer Willis Bond according to a recently released Audit NZ report.

The loss on the sale contradicts statements made by council's chief executive David Clapperton in an April 5, 2017 Community Connections newsletter that, "There are.important criteria, including a realistic price offer." A council Community Housing Transfer document also stated the aim was to "receive a fair market value on sale."

The Audit NZ report for the Year ending 30 June 2017, presented to the February 18 Finance, Audit and Risk committee, noted "some of" Audit NZ's "recommendations from last year’s reports to the council had been addressed, but there were still improvements required."

The council was criticised on a number of fronts including presenting an incomplete set of draft accounts in "some areas" and "delays during the audit in receiving follow-up information especially in relation to [council owned land and property] revaluations and some service performance measure support" which impacted on "the timeliness and completion of audit work."

Other concerns include a lack of controls over council's expenditure system. "Although management has developed a report that may assist to mitigate the risks of unauthorised expenditure, without the one-up review there is still the risk of fraud and inefficiencies."

"Recommendations have been made [by Audit NZ] in previous years to enhance the purchase order controls in the expenditure system to specifically require purchase orders to be approved on a one up basis. This would decrease the risk to the district council by providing a mechanism to prevent inappropriate expenditure being incurred."

The Audit NZ report stated that previously manager's were required to independently review or approve a purchase order but, "there is now no requirement for manager approval over the subsequent invoice."
According to an updated council Delegations Register Mr Clapperton is authorised to spend up to $1 million on specified contracts for services.

In a 'Review of Sensitive Expenditure Internal Audit' 9 August 2017 report financial audit, tax, and advisory company KPMG said an alternative approach to the "one-up review" was required for the chief executive and the Mayor because "there is no more senior person."

KPMG recommended, "the customer and community services group manager approve the chief executives sensitive expenditure and the chief executive approve the mayor's sensitive spending and the mayor approve the customer and community service group manager's sensitive spending."
Although KPMG and Audit NZ have both expressed concerns about control over council spending the council told Audit NZ, "both last year and again this year, that there is no intention to following a one-up approval approach in the electronic purchase order system."

"It is Council’s view that sufficient controls currently exist in the procurement process and the implementation of one up approval for purchase orders would neither be operationally efficient nor significantly lessen the risk."

On conflict of interest matters the Audit NZ report stated, "more detail still needs to be included for handling of issues, breaches and their mitigations...for such areas as secondary employment."

Audit NZ also found, "not all assets in the land and buildings asset class were revalued and there were assets that were revalued by the valuer that the District Council no longer owned."

Audit NZ also found that, "Adjustments to the valuation information were difficult to follow and increased the audit time involved in reviewing the valuation work" and that, "The valuations assumed that useful lives of infrastructure assets had remained the same and no review was done against asset condition."

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