Agenda of Audit and Risk Committee - Tuesday, 10 October 2023

Agenda – Audit and Risk Committee Meeting 10 October 2023 Page 1 of 2

5. Report of Officers

5.1 FINAL AUDIT MANAGEMENT REPORT 2021/22

LOCATION/ADDRESS: Nil

APPLICANT: Nil

FILE: FRE02

AUTHOR: Manager Financial Services

CONTRIBUTOR/S: Nil

RESPONSIBLE OFFICER: Chief Executive Officer

DISCLOSURE OF INTEREST: Nil

SUMMARY:

The Audit and Risk Committee is requested to consider and recommend to Council, the receipt of the final Audit Management Report from the 2021/22 audit.

BACKGROUND

Previous Considerations

ARC 20 April 2023 Item 5.1

Under section 7.9 of the Local Government Act 1995 (the Act), an Auditor is required to examine the accounts and annual financial report submitted by a local government for audit. The Auditor is required to prepare a report by 31 December following the financial year to which the accounts and report relate and forward a copy of that report to:

(a) The Mayor or President;

(b) The Chief Executive Officer (CEO); and

Furthermore, under Regulation 10(4) of the Local Government (Audit) Regulations 1996 (Audit Regulations), where it is considered appropriate to do so, the Auditor may prepare a Management Report to accompany the Auditor’s Report, which is also to be forwarded to the persons specified in section 7.9 of the Act.

Upon finalisation of the Shire’s 2021/22 audit, the Auditors presented their initial findings to the Shire President (who also holds the role of Chair of the Audit and Risk Committee) and the Acting CEO for consideration at an informal briefing session held 6 April 2023.

The Audit and Risk Committee (the Committee) is required to examine the reports of the Auditor after receiving a report from the CEO on the matters reported and:

· Determine if any matters raised require action to be taken by the local government; and

· Ensure that appropriate action is taken in respect of those matters.

The Committee is also required to review a report prepared by the CEO on any actions taken in respect of any matters raised in the report of the Auditor and present the report to Council for adoption. A copy of the report is to be forwarded to the Minister prior to the end of the next financial year or 6 months after the last report prepared by the Auditor is received, whichever is relevant.

The Audited Annual Financial Report for the year ended 30 June 2022, Audit Opinion Letter, Draft Audit Management Report and Management Representation letter were tabled to the Committee on 20 April 2023. The recommendation of the Committee was subsequently tabled with Council at the April OMC, and the following was resolved:

Council Resolution:

(Recommendation) Minute No. C/0423/001

Moved: Cr H Tracey Seconded: Cr D Male

That the Audit and Risk Committee recommends that Council:

1. Receive the Chief Executive Officer’s report relating to the audit.

2. Recognise the final adjusted 2021/22 closing position of $2,891,583 and final net deficit position of $787,906, noting that the deficit has been offset by the reversal of $397,211 from Public Open Space Reserve and the identification of $273,137 in operational savings through the 3^rd Quarter Finance and Costing Review, resulting in a forecast net deficit position of $117,558 at 30 June 2023;

3. Receive the:

(a) Audited Annual Financial Report as per Attachment 1;

(b) Audit Opinion Letter as per Attachment 2;

(c) Draft Audit Management Report as per Confidential Attachment 3, noting that the final report will be tabled through the Audit and Risk Committee to Council once finalised; and

(d) Management Representation Letter as per Attachment 4.

4. Adopt the Audited Annual Financial Report dated 13 April 2023 for the year ended 30 June 2022 as per Attachment 1.

CARRIED UNANIMOUSLY BY ABSOLUTE MAJORITY 6/0

The final Audit Management Report has now been received and is tabled for the Committee’s consideration.

COMMENT

The final Audit Management Report (Confidential Attachment 2) provides an overview of the approach undertaken in respect of the annual Audit process and the associated outcomes of the audit. The Management Report also identifies any findings that, whilst generally not material in relation to the overall audit of the financial report, are considered relevant to the day-to-day operations of the Shire. The findings do not impact the outcome of the annual financial audit however they do provide guidance to strengthen internal controls, policies, and procedures.

Matters Identified

The draft report presented to Council in April 2023 identified 36 findings, including 19 new findings identified during the 2021/22 audit along with 17 prior year findings.

The final report identifies 34 findings and recommendations. One finding was removed from the 2021/22 findings (10. backup management) and one prior year finding was removed (34. project contract documentation). 6 significant matters were identified, compared to 10 in the 2020/21 audit, with 3 identified as new findings during the 2021/22 audit. Three of the prior year findings raised in the draft report were reduced, one from significant to moderate rating, one from significant to minor rating, and one from moderate to minor rating.

The Audit Management Report details identified risks relating to operational controls within the Shire and includes comment from Management on each issue, inclusive of details on how these matters will be mitigated. Details contained within the report are considered confidential as releasing them publicly would increase the likelihood that identified risks could be the target of fraudulent or illegal activities. Complete details of each matter raised are contained in the full report at Confidential Attachment 1.

16 of the findings were identified as complete at 30 June 2023 as shown in the final report. Two findings have since been completed and the remainder are being progressed by Officers.

Resolutions

An update on the progress of outstanding audit findings is attached as Confidential Attachment 2. Officers continue to progress the outstanding matters raised through the external audits, including the Financial Management Review undertaken by Stanton’s in 2022.

CONSULTATION

Office of the Auditor General (OAG)

STATUTORY ENVIRONMENT

Local Government Act 1995

6.4 Financial report

7.9 Audit to be conducted

Local Government (Audit) Regulations 1996

Local Government (Financial Management) Regulations 1996

POLICY IMPLICATIONS

Nil.

FINANCIAL IMPLICATIONS

No specific financial implications are associated with this item.

Remediation of any of the issues raised within the Audit Management Report may require budget allocations to resolve. Where this requires funding outside of the existing 2023/24 adopted annual budget, Responsible Officers would request budget allocations either through the Shire’s Finance and Costing Review process, or as part of the 2024/25 annual budget process.

RISK

Officers presented the draft version of the Audit Management Report to the 20 April 2023 Audit and Risk Committee meeting, within the item presenting the 2021/22 annual financial report. Officers assessed the risks associated with delaying a Council resolution and the outcome was to present the draft Audit Management Report to the Audit and Risk Committee in April 2023. It was noted within the report recommendation that the final report would be presented to the Audit and Risk Committee once received.

The risks considered included:

1. Delaying the full presentation of the 2021/22 annual financial report and associated reports until the Final Management Report was received; however this would have delayed and breached statutory timeframes for adopting the Annual Financial Report, setting and holding the Annual Electors Meeting.

2. Not presenting the draft version of the Audit Management Report, only presenting the final report once received; however for transparency this was not acceptable, only minor changes to the final version were anticipated, and the timeframe for receipt of the final version from Office of the Auditor General was not known.

STRATEGIC ASPIRATIONS

Performance - We will deliver excellent governance, service & value for everyone.

Outcome 13 - Value for money from rates and long term financial sustainability

Objective 13.1 Plan effectively for short- and long-term financial sustainability

Outcome 14 - Excellence in organisational performance and service delivery

Objective 14.3 Monitor and continuously improve performance levels.

VOTING REQUIREMENTS

Absolute Majority

REPORT RECOMMENDATION:

That the Audit and Risk Committee recommends that Council:

1. Receive the final Audit Management Report as per Confidential Attachment 2;

2. Receive the progress update of findings as per Confidential Attachment 3; and

3. Requests the Chief Executive Officer to progress the finalisation of all outstanding findings as soon as practicable.

Attachments

Transmittal Letter to the Shire President

Audit Management Report 2021/22 - Final (Confidential to Councillors and Directors Only)

This attachment is confidential in accordance with section 5.23(2) of the Local Government Act 1995 section 5.23(2)((f)(ii)) as it contains “a matter that if disclosed, could be reasonably expected to endanger the security of the local governments property”.

Management Findings - September 2023 Update (Confidential to Councillors and Directors Only) (Confidential to Councillors and Directors Only)