Local Government Magazine
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The Auditor-General is watching

With legislative reform proceeding in all directions, I am spoilt for choice about really big things happening in the local government space to write about this month. By Linda O’Reilly, Special Counsel Tompkins Wake

But there are articles aplenty about three waters, the replacement of the Resource Management Act, and where the Local Government Review might lead. Instead, I am focusing on one of those small but enduring topics – the oversight of local government decision-making.

The Office of the Auditor-General maintains an interesting update on its website on matters it has had cause to investigate. If you are interested, you can get the latest news from the site as it appears by going to https://oag.parliament.nz and signing up on the contact page.

A recent item featuring Masterton District Council’s decision to fund a new civic facility caught my eye, and it is a good example of the oversight the Office provides.

The Auditor-General’s role is to help Parliament to ensure that public entities are effective, efficient, and accountable. Under section 18 of the Public Audit Act 2001 the Auditor-General may inquire, either on request or on their own initiative, into any matter concerning a public entity’s use of its resources. The Auditor-General is also the sole entity that can institute proceeding for any offence against the provisions of the Local Authorities (Members’ Interests) Act 1968.

In the Masterton case there was potential jurisdiction under both of these Acts, while another related issue concerning the council’s consultation process for the civic facility was left to the jurisdiction of the Ombudsman under the Ombudsmen Act 1975.

Over three decisions between June 2019 and June 2021 the council decided to: progress an option for a new civic facility to public consultation; identify a preferred location on land owned by the Masterton Trust Lands Trust; and include funding for the proposal in its 2021-31 long-term plan. At the time of these decisions four councillors were trustees of that Trust.

The OAG received complaints about two issues that potentially engaged jurisdiction under both the Public Audit and the Members’ Interests Acts. The first was the adequacy of the business case for the civic facility and its options assessment, and the second suggested the four councillors who were also trustees might have had a conflict of interest.

In relation to the analysis undertaken before deciding to proceed with the civic facility, it was noted that the decision to proceed was taken in opposition to advice from a Steering Group appointed by Council. This Steering Group advised that there was not a demonstrated need for the project and expressed significant concerns about value for money and affordability. Although the Council considered the Steering Group paper, it did not record its reasons for not following its advice. The OAG expressed its concern about the absence of this critical step, saying: “Elected members can make decisions that differ from recommendations put to them. However, where a decision is made contrary to advice, it is advisable to record the reasons for the decision in order to be able to evidence the rationale for it. This step can allay any potential concerns that advice was ignored, or not properly considered, when making decisions about spending public money. It also supports public trust and confidence.”

All local authorities should ensure that they record the reasons for key decisions. Where the decision is based on reports considered in the course of decision-making, it may be assumed that those reports provide those reasons. But where a decision departs from the reasoning and recommendations set out in any report  presented, it is particularly important that the ‘reasons’ for the decision are recorded in the minutes.

On the conflict of interest issue, it was noted that the council had taken steps to manage that conflict. It had identified the potential conflict between the roles of councillors and trustees in relation to the project, obtained legal advice about those councillors taking part in decision-making in relation to the project, and restricted access by those councillors to relevant commercially sensitive information. Of course, the council could not order those councillors to abstain from participation on the occasions that the matter was to be debated, but the councillors themselves decided not to participate in the decision on the preferred location of the civic facility. They did, however, participate in the long-term plan deliberations on project funding, because they did not consider this a conflict of interest. The OAG was not so sure, noting: “… the councillors’ decision to participate in some civic facility decisions and not others had the potential to be confusing to the public or those [who] want to understand the process.”

The failure of those councillors to formally record their interest and their decision to participate in the minutes was noted. The OAG said: “… the public needs to have confidence that decisions involving activities carried out in the public interest or paid for using public funds are made impartially, for the right reasons, and not influenced by personal interests or ulterior motives. Formally recording interests and how any conflicts between those interests will be managed supports trust and confidence in the Council’s decision-making process. It also gives reassurance that elected members are acting in the interests of the community.”

Notwithstanding that the council has now taken steps to ensure reasons for significant decisions are recorded, and that declarations of conflicts of interest and decisions to abstain or participate are clearly documented, the OAG has advised the council that it will “take an ongoing interest in the project”.

This is a reminder that attention to the process of decision-making still matters, and that there is more than just recourse to the courts available for those who are not satisfied with that process. 

It is also worth noting that where there is concern about a conflict of interest of a pecuniary nature, section 6(4) of the Members’ Interests Act provides a limited avenue for a council or a member to seek a ruling avoiding the prohibition on taking part in a matter on which they have a pecuniary interest. 

The OAG can declare that the prohibition shall not apply because it “would impede the transaction of business by the local authority” or “that it would be in the interests of the electors or inhabitants of the district” that it should not apply.

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