Auditing the OAG's Audit Arm

I was there, in the Golf Club at Mangawhai heads to hear Lyn Provost (The Auditor General) provide a community briefing about its enquiry into the Mangawhai community wastewater scheme. And I guess I have been "there" - involved - for the past 12 years and more in both the early planning that led to the scheme, and as bach owner, and lately as a member of the Mangawhai Ratepayers and Residents Association.

Yesterday was a special moment for many. It was the first inkling we had of what was explored in the enquiry, (enquiries) that have been underway for 20 months.

In this posting I will concentrate on the review of the audit work done by the Audit Office of the Office of the Auditor General.

This was a separate enquiry.

It was conducted by Neil Cherry.  (According to Linkedin he is currently with: External Reporting Board (XRB), New Zealand Auditing and Assurance Standards Board (NZAuASB), and Australian Auditing and Assurance Standards Board (AUASB). And also/ previously with: Professional Standards Board, NZICA, Wellington City Council, New Zealand Institute of Chartered Accountants).

TERMS OF REFERENCE

The Terms of Reference for the Review follow. These are quoted in full - to give you a good flavour. You will recognise some of these words in the enquiry findings, which I quote from selectively, later on in this posting:

Scope of the review of audit work

The Reviewer will assess and report on the sufficiency and appropriateness of the planning, performance and reporting of the audits by Audit New Zealand of Kaipara District Council’s:

• Long Term Community Council Plans (‘LTCCPs’) for 2006, 2009 and the Long Term Plan for 2012,
• Annual Reports for the years 2003 to 2012; and 
• Annual Plans for the years 2003 to 2012. 

 The Reviewer will assess whether the work of Audit New Zealand was carried out in accordance with New Zealand auditing and assurance standards (including those issued by the Auditor-General), that applied at the time the audits were performed. In particular the Reviewer will assess and report on the following matters:

Planning and performance of the audit engagement 

• Whether the auditors sufficiently and appropriately planned and performed the audits, including whether they had a sufficient and appropriate focus on significant material risks or financial matters, including in relation to the Mangawhai scheme;
• Whether the auditors planned the audits so that they identified the key legislative matters that needed to be addressed in the audit and whether they appropriately performed the audits to ensure that these matters were addressed; 
• Whether the auditors planned the audits with due care, competence, independence and with sufficient professional judgement and scepticism; 
• Whether the auditors had and applied sufficient and appropriate quality control mechanisms in planning and performing the audits; 
• Whether the auditors in planning and performing the audits sufficiently and appropriately took into account key issues affecting the financial management of the Council; 
• Whether the auditors sufficiently and appropriately communicated with Kaipara District Council staff in planning and performing the audits; 
• Whether the auditors used adequate and appropriate resources in planning and performing the audits, including the use of appropriately skilled staff or experts; 

 Audit reporting and conclusions

Whether the auditors’ conclusions were supported by sufficient and appropriate evidence;
Whether the auditors’ conclusions were appropriately reported both in the audit report and management letters;

Audit documentation

Whether the audit files contained sufficient and appropriate documentation of the audits;
Whether the audit files contained evidence to show that the auditors had obtained sufficient and appropriate audit evidence to support their conclusions;

Audit methodology

Whether the Audit New Zealand audit methodology adequately supported the planning and performance of the audits of Kaipara District Council;

Audit communications 

Whether the audit opinions in the audits were appropriate;
Whether the management letters were appropriate.

 So. That's what Neil Cherry was asked to do. His report is presented in full as Appendix 6 of the 427 page report. It is about 100 pages in length. It is quite separate from the enquiry conducted by the Office of Auditor General into the wastewater scheme itself.

INDEPENDENT REVIEW: AUDIT SERVICES ON KDC

In this part of the posting, I will simply cut and paste, sometimes with comment, the sections of this very detailed and comprehensive review, that - to me - are the most salient.

I present these in the order they are contained in the review - which begins with an Exec Summary....

Summary: The auditor’s knowledge and understanding of the wastewater project....

Summary:  2003 - 2005....

Summary:  2006 - 2009

Summary:  Audits performed 2006-2009....

Key Findings and Observations (Selection)....

The auditor’s assessment of KDC's financial management control environment....

Other general findings and observations...

Various other selections..(You will note here an italicised quote from Audit NZ that was obtained in answer to questions posed to Audit NZ by Neil Cherry in the course of his review...)

Assumptions and financial prudence....

Engagement Quality Control Review (bombshell)....

The Council's accounting treatment of the wastewater project....

(and so on...)

My Wrap Up...

What is interesting is that the OAG has organised its enquiry - and so has Neil Cherry - into specific special periods of time. 2002-2005, and 2006-2009, and 2010-2012.

When defending herself from attacks at the public meeting, the Auditor General (Lyn Provost) emphasised the fact that no letters or complaints had been received from residents in the period 2006-2009, which is (you will see above) the period when the most critical failings of Audit NZ happened. Provost did acknowledge the complaints that were received in the period 2002-2005 (and upon which the OAG acted), and also the complaints received in the period 2010-2012 (when the OAG commenced this enquiry).

It seems to me that this is a thin attempt by the OAG to avoid any responsibility for what happened (or didn't happen) in the most problematic period which was 2006-2009.

I ask you this Ms Provost: why apologise unreservedly to the Mangawhai community (which you did  - it was an unqualified apology), if you seriously believe that it is all down to failings of Audit NZ only, and that your office holds no responsibility for the audit failings of Audit NZ - your own arms-length audit entity?

And did you have anything to do with, or knowledge of, the dispensation of the Audit Quality Review referred to in 267 and 268 above?