Auditors failed to spot Kaipara debt blow-out

Mangawhai locals at the meeting with Lyn Provost yesterday. Photo / Dean Purcell

Commissioners eyeing legal action after report into Mangawhai sewerage scheme debacle.

Commissioners at Kaipara District Council are taking legal advice over whether they can sue auditors who failed to spot a debt blow-out at the former council.

Their announcement follows the release of yesterday's report by the Office of the Auditor-General into the council's Mangawhai sewerage scheme, which almost doubled in cost from $35 million to $63 million in 2006 without ratepayer consultation.

The 400-page report found "poor governance, poor decision-making and inadequate management" by the former council but no evidence of criminal activity. Basic errors included a cost blow-out for the effluent disposal from $361,000 in 2005 to $14 million.

It highlighted the council's poor decision-making processes, including bad record-keeping, lack of attention to detail, lack of clarity about who was responsible for particular decisions and the use of workshops instead of council meetings to make important decisions.

The report included an independent review by Auditing and Assurance Standards Board chairman Neil Cherry, which found the work of the auditor used by Audit New Zealand was "substandard" between 2006 and 2009.

His report said the auditor relied on the council's management as the primary source of audit evidence and did not independently corroborate the information provided. The errors affected four annual audits and long term plan audits.

Lyn Provost.

Auditor-General Lyn Provost apologised unreservedly for the mistakes to an angry crowd of about 200 at the Mangawhai Club but said her office did not accept liability.

She said the main finding from the report was that the council had got out of its depth developing a sewerage scheme for the local harbour.

Ms Provost said it was not in her power to say who should pay the $80 million debt now facing ratepayers, saying this was a question for Parliament, the courts and the Government-appointed commissioners, who now run the council.

Mangawhai resident Clive Boonham, who discovered many of the rating errors, told Ms Provost that if her office had done its job properly none of the cost overruns would have happened. Other residents agreed and called on her to resign.

She replied that it was not possible for an auditor to stop everything.

The chairman of the commissioners, John Robertson, said those potentially responsible, based on the report's findings, included the auditors and former councillors and managers.

The report's advice

To councillors: "Common sense is a legitimate governance tool''
To council staff: "There are limits to contracting out''
To auditors: :
"Assessing the strength of the management control environment is fundamental''