House of Assembly Fifty-Second Parliament, First Session (52-1) 52 1 Parliament of South Australia House of Assembly published Bills Local Government (Auditor-General) Amendment Bill LOCAL GOVERNMENT (AUDITOR-GENERAL) AMENDMENT BILL Second Reading Second Reading Adjourned debate on second reading. (Continued from 22 July 2010.) The Hon. S.W. KEY House of Assembly Ashford The Hon. S.W. KEY (Ashford) (11:23): The honourable member for Fisher, Dr Such, has introduced the Local Government (Auditor-General) Amendment Bill 2010 to amend provisions of the Local Government Act 1999. The honourable member has called for the amending of part 2, division 4, sections 128 to 130 of the act to require that the auditor of each council and any subsidiary of the council be the Auditor-General. The government does not support this motion. His argument for the amendment is that this change would give the Auditor-General oversight of the affairs of councils, thereby minimising risks to breaches of governance, administration and financial malpractice. He argues that this would provide early warning signs of inappropriate behaviour and allow financial performance comparisons of council by the public. In his second reading speech the member cites a quote from the Auditor-General's report of 30 June 2006 which states: There are a number of factors that indicate a need for the responsible Minister and/or Parliament to have, on an annual basis, a positive comprehensive independent audit assurance concerning not only matters relating to the financial statements, but also, the adequacy of controls and general governance issues associated with Local Government administrative arrangements, ie, propriety and lawfulness considerations. The current provisions of the Local Government Act 1999 require councils to have an independent qualified auditor (section 128), set out requirements as to the conduct of the audit (section 129) and direct the CEO of a council to assist the auditor (section 130). The provisions of the act provide a legislative audit mandate for a local government auditor that is comparable to the Auditor-General. It ensures that councils are audited to a broader extent appropriate to the public sector and sets positive comprehensive audit assurance that not only covers the matters relating to council financial statements but also the adequacy of internal controls and general governance issues associated with council administrative arrangements, that is, property and lawfulness. In layperson's terms, section 129(1) and (2) of the act mean that the auditor is not just examining where the money went but also how a council controls public money and whether its management systems are sufficiently robust and prudent to prevent or detect fraud, wasted inefficiencies and so on. The purpose of auditing controls is to increase confidence in the way the public finances are managed. It is not sufficient that the public money is managed well: it also needs to be seen to be managed well. Therefore, the auditor will be required to check not only the use of public money but also the systems of control that a council uses to manage public money. Both the audit opinion with respect to financial statements and the audit opinion relating to sufficiency of internal controls will accompany the council's financial statements (section 129(9)). Further, the customary audit management letter that provides technical advice to council management is also to become a public document after the council has had 60 days to consider and respond to it. Under the recently introduced amendments to section 129, the matters on which a council's auditor must report to the minister have been expanded. They now include the reasons for any adverse audit opinion, the reasons if the audit opinion is provided subject to qualifications or limitations, and any matter that in the auditor's opinion ought to be reported to the minister (section 129(6)(a) to (h)). The act states that the council auditor must be a registered company auditor or a firm comprising of at least one registered company auditor (section 128(3)(a) and (b)). As such, individuals or firms undertaking audits would normally be members of one of the three professional accounting bodies and, as such, are bound by strict codes of professional conduct. Private sector individual firms are required to prepare audit reports in accordance with the same auditing standards applicable to the Auditor-General. In addition to legislative requirements, the Local Government Association (LGA), in conjunction with the state government, has issued information papers dealing with the scope of external audits and the content of an audit management letter. These papers provide important material for councils covering a specification for robust external audits in the local government good practice. Section 129(6)(a) to (h) set out provisions that require auditors to report to the minister. Under section 129(8) of the act, the minister may, on the basis of a report, under subsection (6) appoint an investigator or investigators to carry out an investigation of a council under chapter 13 part 3 division 1 of the act. The investigator may be the Auditor-General. On that basis, the government does not support the bill. The Hon. R.B. SUCH House of Assembly Fisher The Hon. R.B. SUCH (Fisher) (11:29): The Economic and Finance Committee, I believe, was in support of something similar to what I propose, and I do not know why the government has overlooked that. The reporting format from the private auditors, and no-one is suggesting they do not continue to audit, is not standardised, so you cannot easily compare one council with another. That is not a matter of potential corruption but it is a matter of ratepayers not being able to compare what one council is doing vis-a-vis another. I think this is a reasonable measure, and I think it should be part of the package that the Attorney develops in his alternative to an ICAC. The house divided on the second reading: The Speaker House of Assembly The SPEAKER: There being only one aye, there is no count required. The motion is negatived. Second reading thus negatived.