Council warned of fraud risk

The Waitaki District Council is at risk of fraud and urgent changes should be made to improve its financial systems, Audit New Zealand warns.

Audit New Zealand’s interim audit report for the council indicates concerns were raised in 2009, but the council had yet to make changes to its financial systems. The report for the year ended June was submitted to the council’s Finance, Audit and Risk Committee on Wednesday.

It recommends the council make one ‘‘urgent’’ change to expenditure systems, and outlined a further 16 ‘‘necessary’’ changes and three ‘‘beneficial’’ ones. ‘‘There are weaknesses in the key systems and controls over the expenditure process,’’ the report says.

‘‘Key elements of this issue were raised in 2009 and added to after the transition to the Authority system in 2011." Audit New Zealand explains any issue prioritised as ‘‘urgent’’ indicated major improvements were required, due to a ‘‘serious deficiency’’ which exposed the council to ‘‘significant risk’’. ‘‘Risks could include a material error in the financial statements and the non-financial information; a breach of significant legislation; or the risk of reputational harm.’’ The report is critical of ‘‘outdated’’ authority listings in expenditure processes and said accounts payable staff relied on their knowledge of other staff to dictate if an invoice had been approved.

‘‘Absence of controls listed above regarding purchasing and approvals and a lack of segregation of duties, increases the risk that fraud or error could occur and go undetected,’’ the report said.

The council responded, in the audit report, saying the process of an expenditure overhaul had started. ‘‘ A complete overhaul of the purchasing/payables process has begun and changes to address the above issues and improve efficiency and effectiveness will be implemented as soon as practical." Speaking at the committee meeting on Wednesday, chief financial officer Paul Hope said the overhaul should be completed by mid-2017. ‘‘Our focus is the urgent [issues], others will be addressed when appropriate, but there are other things to worry about.’’

The council upgraded its software in 2011, but software suitable to further enhance the system was not available until the need of 2015, he said. ‘‘We want to make sure it is effective, because it will affect a lot of staff,’’ he said.

Councillors Kathy Dennison and Sally Hope questioned the urgency of Hope’s financial team in dealing with issues in a timely manner.

‘‘This is something that has been sitting under our nose for some time,’’ Sally Hope said.

‘‘We see this as urgent, and it is just not getting ticked off,’’ Dennison said.