AGENDA

AUDIT COMMITTEE MEETING

11 December 2015

AGENDA

AUDIT COMMITTEE MEETING

11 December 2015

NOTICE OF MEETING

Dear Elected Member, The next Audit Committee Meeting of the Shire of Mount Magnet will be held on Friday 11 December 2015 in Council Chambers, 90 Hepburn Street, Mount Magnet commencing at 11:30am.

Warren Olsen Chief Executive Officer 2 December 2015

DISCLAIMER

No responsibility whatsoever is implied or accepted by the Shire of Mount Magnet for

any act, omission, statement or intimation occurring during this meeting. It is

strongly advised that persons do not act on what is heard at this meeting and should

only rely on written confirmation of Council’s decision, which will be provided within

fourteen (14) days of this meeting.

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1. DECLARATION OF OPENING / ANNOUNCEMENT OF VISITORS................... 1

2. RECORD OF ATTENDANCE / APOLOGIES / LEAVE OF ABSENCE ................. 1

3. ELECTION OF CHAIRPERSON (AND DEPUTY CHAIRPERSON, IF DESIRED) ................................................................................................................... 1

4. APPLICATIONS FOR LEAVE OF ABSENCE ......................................................... 2

5. CONFIRMATION OF MINUTES OF PREVIOUS MEETING ................................ 2

5.1 Minutes of the Audit Committee Meeting held on 17 July 2015 .................. 2

6. DECLARATIONS OF INTEREST ............................................................................. 2

7. BUSINESS DEFERRED FROM PREVIOUS MEETING ......................................... 2

8. REPORTS .................................................................................................................... 2

8.1. Auditor’s Management Letter for Year Ended 30 June 2015 ........................ 2

8.2 Independent Audit Report for Year Ended 30 June 2015 .............................. 6

9. NOTICE OF MOTIONS FOR THE NEXT MEETING ............................................. 9

10. CONFIDENTIAL BUSINESS .................................................................................... 9

11. LATE AGENDA ITEMS............................................................................................. 9

12. NEXT MEETING ........................................................................................................ 9

13. CLOSURE OF MEETING .......................................................................................... 9

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Shire of Mount Magnet Agenda for the Audit Committee Meeting

In Council Chambers, 90 Hepburn Street, Mount Magnet 11 December 2015 commencing at 11:30am

PREAMBLE

"The Mount Magnet Shire Council embraces the Heritage of the land on which we

meet. Council pays respect to the Elders and Ancestors of this land. Council

acknowledges the Culture forever embedded with the Custodians of this Country"

1. DECLARATION OF OPENING / ANNOUNCEMENT OF VISITORS

2. RECORD OF ATTENDANCE / APOLOGIES / LEAVE OF ABSENCE

3. ELECTION OF CHAIRPERSON (AND DEPUTY CHAIRPERSON, IF

DESIRED)

Subsection 5.12 (1) of the Local Government Act 1995 requires the members of a committee to elect a presiding member from amongst themselves in accordance with Schedule 2.3, Division 1 of the Act. The CEO is to preside at the meeting until the office is filled. (1) The election is to be conducted by the CEO in accordance with the procedure

prescribed. (2) Nominations for the office are to be given to the CEO in writing before the

meeting or during the meeting before the close of nominations. (3) Nominations close at the meeting at a time announced by the CEO, which is to be

a sufficient time after the announcement by the Chief Executive Officer that nominations are about to close to allow for any nominations made to be dealt with.

(4) If a member is nominated by another member the CEO is not to accept the nomination unless the nominee has advised the CEO, orally or in writing, that he or she is willing to be nominated for the office.

(5) The councillors are to vote on the matter by secret ballot as if they were electors voting at an election.

(6) Subject to clause 5(1), the votes cast under subclause (5) are to be counted, and the successful candidate determined, in accordance with Schedule 4.1 (which deals with determining the result of an election) as if those votes were votes cast at an election.

Subsection 5.12 (2) of the Local Government Act 1995 provides that members of a committee may elect a deputy presiding member from amongst themselves; any such election is to be in accordance with Schedule 2.3, Division 2. Nomination forms for Committee Chairperson and Deputy Committee Chairperson are

distributed with this agenda.

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4. APPLICATIONS FOR LEAVE OF ABSENCE

5. CONFIRMATION OF MINUTES OF PREVIOUS MEETING

5.1 Minutes of the Audit Committee Meeting held on 17 July 2015

OFFICER RECOMMENDATION

Moved: Seconded:

That the report of the Audit Committee meeting held on 17 July 2015 as circulated be

confirmed as a true and correct record of proceedings.

CARRIED/LOST

6. DECLARATIONS OF INTEREST

7. BUSINESS DEFERRED FROM PREVIOUS MEETING

Nil.

8. REPORTS

8.1. Auditor’s Management Letter for Year Ended 30 June 2015

Officer: Chief Executive Officer Amended By: Nil Disclosure of Interest: Nil Meeting Date: 11 December 2015 Matter for Consideration

To receive the Auditor’s Management Letter dated 19 November 2015 and the Independent Audit Report for the Year Ended 30 June 2015. Background

We have recently received the management letter from auditors Anderson Munro and Wyllie, which is reproduced on the immediately following page. It is the duty of the Audit Committee to receive and consider this document. We have also received the audited financial statements for YE 30 June 2015; they form part of the Annual Report which is separately circulated, and will not be reproduced here. Comment

In his management letter, the Auditor has identified that: a) Capital expenditure on roads in 2014-2015 had not been capitalised on to the

assets register; and b) There are instances where the value of other assets as shown in the assets register

is at variance with the values shown in the general ledger.

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17 November 2015

Mr Jorgen Jensen President Shire of Mount Magnet PO Box 62 Mount Magnet WA 6638

Anderson Munro & Wyllie C H A R T E R E D A C C O U N T A N T S

Street AdtlreM: Postal Arid-ess; By Appointment:

Units Level 28, AMP Tower 210 •A'inton Hoad PO 0u;( 223 140 St Georges Terrace JOl^JDAJJP Vv'A 6027 JOOMOAl K? DC WA 6919 PERTH WA 6000

T: (08) 9300 0400 E: reception@amwaudit.com.au

W: www.amwaudit.com.au ABN 59 125 425 274

Liability limited by a scheme approved under Professional Standards Legislation

Dear Mr Jensen

MANAGEMENT LETTER

We have now completed our audit of Shire of Mount Magnet for the year ended 30 June 2015.

Our audit has been conducted in accordance with Australian Auditing Standards. Our procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the financial report and the evaluation of significant accounting estimates. While our procedures are designed to identify any material weaknesses and detect misstatements from fraud and error, there is an unavoidable risk that even some material misstatements may remain undiscovered. This unavoidable risk is due to the test nature and other inherent limitations of an audit, together with the inherent limitations of any accounting and internal control system.

We are pleased to advise that during this audit, we noted only the following matter which we believe needs to be brought to your attention.

Capital Additions Not Recorded in Assets Register

During our audit we noted that flood damages capital road expenditure of $1,806,542 was included as an infrastructure road asset addition in the financial report but not recorded in the Synergy asset register. Since Infrastructure asset additions are generally taken up as assets as of 30 June each year there was no impact to the determination of the current year depreciation charge. In addition, we noted instances where the balances of other assets recorded at cost, or the carrying value, recorded in the asset register did not agree to the balances recorded in the general ledger. The net balance of these other variances amounted to $2,569 and was not considered to be material so not adjustment was required.

Whislt we are satisfied that the values of the fixed assets and depreciation recorded in the financial report are not materially misstated we recommend that the necessary adjustments be made in the Shire's accounting system and asset register to ensure that the financial report and general ledger reconcile. This reconciliation should be done at least annually and could be done monthly.

We would like to take this opportunity to thank the Shire staff for the assistance provided during the course of the audit.

Please do not hesitate to call should you like to discuss any aspect of the audit.

Yours faithfully

ANDERSON MUNRO & WYLLIE

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The auditor has not qualified his report as a consequence of these errors, as he considers them to be immaterial; In the case of a) because it hasn’t affected the current year’s depreciation, and in the case of b) because the total variances amounted to less than $2.6K. Nevertheless, these errors (and other errors that I’m aware of in relation to our accounting for assets) need to be rectified. At the time of writing this report, I have a meeting later in the week with our accountant Travis Bate of RSM Bird Cameron to discuss these (and other) accounting issues. I have reproduced Regulation 17A of the Local Government (Financial Management) Regulations in its entirety in the next section of this report. This year, we brought our road assets onto the balance sheet – but that was based on data from the Roman II system, and that data is out-of-date. As mentioned in the Bullet-point Bulletin dated 3 December 2015, I have already indicated to Michael Keane of Greenfield Technical Services that I want to discuss with him a project to update our road data. Apart from every other reason why we would want our roads inventory to be accurate, the inaccurate data presently held in Roman II is probably reducing our allocation of Financial Assistance Grants (FAGs) from the Roads pool. In fact, I believe that when it comes to our road assets, Roman II may be a large part of the problem. I do not intend that as a criticism of the software, which may well be excellent for those who have the resources to feed the beast. But software is only as good as your data accuracy and maintenance; the oldest adage in the computer industry is “GIGO” (or “Garbage In-Garbage Out”). In our case, the data has not been maintained, and we will never have the in-house resources to do so. The other problem with Roman II is that it is a “black box solution” that requires a lot of faith on the part of the user. We cannot understand its internal workings. Personally, I would be much more comfortable keeping our roads in inventory on a spreadsheet. That way, we would at least be able to understand and explain our calculations. If we were to abandon Roman II and keep our own roads inventory on a spreadsheet, we would be able to maintain it ourselves (instead of paying somebody else to do it), and we would also be able to understand and explain/defend our calculations. As a side benefit, we would save about $5,500 pa in licence fees; but that is not the main point. The main point is getting rid of the “black box”. Other problems with our accounting for assets are:

• The airport (and maybe some other land assets) are shown at historical cost, rather than at “fair value” as the legislation requires. I’m not certain why this is so as I understand that the airport has been valued but that the valuation has not been brought to account.

• Our plant and equipment and land and buildings were all subject to a single valuation, in 2012. So we are a little “out-of-sync” with the requirements of the legislation.

After I have discussed the matter with the accountant, I will either report orally or table a separate report at the meeting.

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Statutory Environment

Part 7 Division 4 – Local Government Act 1995; Regulation 16 of the Local Government (Audit) Regulations 1996. Regulation 17A of the Local Government (Financial Management) Regulations 1996, which requires us to show all our assets at “fair value” and to revalue them at intervals not exceeding 3 years. I believe that Regulation 17A is worth setting out in its entirety so that the Committee can fully appreciate the program and can see where we are behind schedule:

17A. Assets, valuation of for financial reports etc.

(1) In this regulation —

fair value, in relation to an asset, means the fair value of the asset measured in accordance with the AAS.

(2) Subject to subregulation (3), the value of an asset shown in a local government’s financial reports must be the fair value of the asset.

(3) A local government must show in each financial report —

(a) for the financial year ending on 30 June 2013, the fair value of all of the assets of the local government that are plant and equipment; and

(b) for the financial year ending on 30 June 2014, the fair value of all of the assets of the local government —

(i) that are plant and equipment; and

(ii) that are —

(I) land and buildings; or

(II) infrastructure;

and

(c) for a financial year ending on or after 30 June 2015, the fair value of all of the assets of the local government.

(4) A local government must revalue all assets of the local government of the classes specified in column 1 of the Table to this subregulation —

(a) by the day specified in column 2 of the Table; and

(b) by the expiry of each 3 yearly interval after that day.

Table

Class of asset Day

Plant and equipment 30 June 2016

Land, buildings and infrastructure for which the fair value was shown in the local government’s annual financial report for the financial year ending on 30 June 2014

30 June 2017

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Class of asset Day

All other classes of asset 30 June 2018

(5) A revaluation under subregulation (4) must be based on the value of the asset as at a time that is as close as possible to the day by which the revaluation is due.

Policy Implications

Yet to be determined. Financial Implications

We have made a modest provision in the current year’s budget to have our plant and equipment revalued. It is yet to be seen whether that provision will be sufficient as we may need to value some land assets also. We may need to pay for a fresh data pick-up in respect of our roads data – I was hoping that that could be deferred until the next financial year. Strategic Implications

Nil. Voting Requirements

Simple Majority

OFFICER RECOMMENDATION

Moved: Seconded:

1. That the Auditor’s management letter dated 19 November 2015 be received.

2. That the CEO's explanation of the actions to be taken to resolve the matters

raised in the management letter be noted.

CARRIED/LOST

8.2 Independent Audit Report for Year Ended 30 June 2015

Officer: Chief Executive Officer Amended By: Nil Disclosure of Interest: Nil Meeting Date: 11 December 2015 Matter for Consideration

To receive the Independent Audit Report for the Year Ended 30 June 2015. Background

We have recently received the Independent Audit Report for the Year Ended 30 June 2015 from auditors Anderson Munro and Wyllie, which is reproduced on the immediately following pages. It is the duty of the Audit Committee to receive and consider the Auditor’s Report.

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Anderson Munro & Wyllie C H A R T E R E D A C C O U N T A N T S

Street Address: Postal Address:

Unit 8 210 Winton Road P0 Box 229 JOONDALUP WA 6027 J00NDALUP DC WA 6919

T: (08) 9300 0400 E: reception@amwaudit.com.au

W: www.amwaudit.com.au ABN 59 125 425 274

Liability limited by a scheme approved under Professional Standards Legislation

By Appointment:

Level 28, AMP Tower 140 St Georges Terrace PERTH WA 6000

INDEPENDENT AUDIT REPORT TO THE ELECTORS OF THE SHIRE OF MOUNT MAGNET

Scope

We have audited the financial report of Shire of Mount Magnet for the year ended 30 June 2015. The financial report comprises the Statement by Chief Executive Officer, Statements of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows, Rate Setting Statement and accompanying notes to the financial statements.

The Council is responsible for the preparation of a financial report which provides a true and fair view of the financial performance and position of the council in accordance with the Local Government Act 1995, and Regulations. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error and for accounting policies and estimates inherent to the financial report.

Audit Approach

We conducted an independent audit of the financial report in order to express an opinion on it to the electors of the Shire of Mount Magnet. Our audit was conducted in accordance with Australian Auditing Standards to provide reasonable assurance as to whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control and the availability of persuasive rather than conclusive evidence. Therefore an audit cannot guarantee that all misstatements have been detected.

We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Local Government Act 1995, and Regulations, including compliance with Accounting Standards in Australia, and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the Council's financial position, and of their performance which is represented by the results of operations and cash flows.

We formed our opinion on the basis of these procedures, which included:

examining on a test basis, information to provide evidence, supporting the amounts and disclosures in the financial report.

assessing the appropriateness of the accounting policies and disclosures used, and the reasonableness of significant accounting estimates made by the directors.

Whilst we considered the effectiveness of management's internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls.

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Independence

Anderson Munro & Wyllie are independent of the Shire of Mount Magnet, and have met the independence requirements of Australian professional ethical pronouncements and the Local Government Act 1995.

The audit opinion expressed in this report has been formed on the above basis.

Audit Opinion

In our opinion, the financial statements of the Shire of Mount Magnet are properly drawn up:

a) So as to give a true and fair view of the state of affairs of the Shire as at 30 June 2015 and the results of its operations and cash flows for the year then ended;

b) In accordance with the requirements of the Local Government Act 1995; and c) In Accordance with Applicable Australian Accounting Standards.

Statutory Compliance

a) We did not during the course of the audit, become aware of any other instances where the Council did not comply with the requirements of the Local Government Act 1995 and the Local Government (Financial Management) Regulations 1996.

b) There were no material or significant adverse trends in financial position or financial management practices revealed during the course of our audit.

c) We have obtained all necessary information and explanations in relation to our audit. d) Our audit procedures were all satisfactorily completed. e) In relation to the Supplementary Ration Information presented at page 56 of this report,

we have reviewed the calculations as presented and in our opinion these are; i) Based on verifiable information, and ii) Reasonable assumptions.

5 in Perth, Western Australia

BILLY-JOE THOMAS Director

o sdLct-vs ANDERSON MUNRO & WYLLIE Chartered Accountants

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We have also received the audited financial statements for YE 30 June 2015; they form part of the Annual Report which is separately circulated, and will not be reproduced here.

Comment

Despite the asset valuation issue raised in his management letter, the Auditor has not qualified his Report. Consequently, I have no comment to make here. Statutory Environment

Part 7 Division 4 – Local Government Act 1995; Regulation 16 of the Local Government (Audit) Regulations 1996. Policy Implications

Nil. Financial Implications

Nil. Strategic Implications

Nil. Voting Requirements

Simple Majority

OFFICER RECOMMENDATION

Moved: Seconded: That the Independent Audit Report for the Year Ended 30 June 2015 be received.

CARRIED/LOST

9. NOTICE OF MOTIONS FOR THE NEXT MEETING

10. CONFIDENTIAL BUSINESS

Nil.

11. LATE AGENDA ITEMS

12. NEXT MEETING

I recommend that the Committee next meets on 19 February 2016, prior to the February Council meeting

13. CLOSURE OF MEETING

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