Office of the Valuer-General Audit Report

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District Council Garth Laing Director, LandMass Technology

1 Audit Report Gisborne District Council Issued to Barry Vryenhoek Chief Financial and Information Officer, Gisborne District Council Garth Laing Director, LandMass Technology Limited Copied to Neill Sullivan Valuer-General, LINZ

2 Table of Contents 1.0 EXECUTIVE SUMMARY Background Objectives Audit Conclusion Ranking of Revaluation against Valuer-General s approval standard Acknowledgements OBSERVATIONS AND RECOMMENDATIONS Audit File Maintenance of Mandatory Data Fields... 4 APPENDIX 1-AUDIT APPROACH... 6 Scope 6 Work Performed... 6 APPENDIX 2-RANKING EXPLANATION... 8 Gisborne District Page 1 of 10

3 1.0 Executive Summary 1.1 Background The Rating Valuations Act 1998 places the responsibility on territorial authorities for the production of the District Valuation Roll (DVR). The Valuer-General is responsible for monitoring and auditing the DVR against the standards set out in the Rating Valuations Rules (Rules). All general revaluations require the Valuer-General s certification before they may be implemented. The Gisborne District Council engaged Landmass Technology Limited as their Valuation Service Provider (VSP) to undertake the general revaluation. Whilst the basis and audit files were supplied by Landmass Technology, the council has the overall responsibility for managing the revaluation and achieving certification. 1.2 Objectives The first objective of the audit is to provide certification of the proposed values. On 24 October 2014 an audit opinion was issued to the Gisborne District Council certifying approval for the implementation of the revaluation. The second objective is to highlight areas where improvement is needed and this audit report has been provided to: advise rankings of your initial revaluation basis, property inspections, application of values and adequacy of responses to audit follow up questions against an acceptable quality standard comment on your management control systems bring to your attention any significant matters identified during the audit that require improvement assist your future compliance with the Rules. This audit was also compared to the previous general revaluation audit completed in 2011 to ascertain if the revaluation process had generally improved, remained the same or deteriorated. 1.3 Audit Conclusion Overall sound management systems and office procedures were in place for the provision of the revaluation. A comprehensive revaluation basis was supplied that was well supported by staff with good district knowledge. It was apparent there was a clear understanding of the requirements of the rating valuations environment. Comparisons with Previous General The overall standard of the revaluation process has improved since the audit undertaken in Areas for improvement identified during the audit process We have modified our audit report since your previous revaluation by removing significance ratings for individual observations. This modification was made in response to feed back that the ratings of extreme, high, medium and low were confusing and detracted from the process improvement message that was trying to be conveyed. Gisborne District Page 2 of 10

4 Office of the Valuer-General As a result there are no longer any ratings on observations and those observations that were previously categorised as medium or low have now been incorporated as appropriate in the following improvement narrative area. These areas along with any other observations will be monitored for future revaluations by the Office of the Valuer General. There was one observation identified in the audit (see section 2 of this report) and no medium or low level improvement recommendations. 1.4 Ranking of Revaluation against Valuer-General s approval standard Rankings range from 1 to 5, with 5 denoting an ideal quality and 1 denoting an unacceptable quality (see Appendix 2 for a detailed explanation of rankings). The following scores relate to the initial basis and inspections. An overall ranking of 4 is the minimum level required and any areas below this would have required improvement during the audit to achieve certification. Ranking Ranking Criteria Ranking Presentation of Basis 4.6 Evidence Analysis 4.5 Evidence Conclusions 4.6 Application of Values 4.5 Working Basis 4.5 Inspections of Sold Properties 4.5 General Property Inspections 4.5 Quality Control 4.5 Quality Control General Property Inspections Inspections of Sold Properties Working Basis Application of Values Evidence Conclusions Evidence Analysis Presentation of Basis 1.5 Acknowledgements The audit team would like to extend our appreciation and thanks for the assistance, cooperation and hospitality provided during this audit. Gisborne District Page 3 of 10

5 2 Observations and Recommendations 2.1 Audit File Audit Process: Maintenance of Mandatory Data Fields Commentary: It is important to ensure that all data fields on the audit file are maintained in an effective and timely manner. This is particularly important when a property characteristic is the only differentiating character as to value and when these fields are utilised as a mass appraisal tool. Observation: There were three issues identified concerning the maintenance of mandatory data fields in the District Valuation Roll (DVR); 1. Only productive rural rating units should have production figures. 589 rating units had milk solids or stock units within the production field when the property category was not a productive rural category, such as lifestyle and forestry categories. 2. There was inconsistency in rural property categories for properties that had similar physical characteristics and values and therefore highest and best use, for example between lifestyle and pastoral categories. 3. A comparison of production (milk solids or stock units) between the rural valuation programme utilised by the valuation service provider and the district valuation roll revealed different production figures between the two. The production levels for individual properties should be consistent in both systems. These issues were the result of the valuation service provider using a valuation programme separately from the DVR and an absence of a comprehensive reconciliation of all data fields between each database. The contents of the effected data fields were corrected during the course of the audit and the build up valuation approach resulted in no value changes as a result of these errors. The District Valuation Roll is however the authoritative source of data supporting proposed values and care must be taken to ensure it is accurate and complete.. Risk and Effect Analysed valuation conclusions are not applied to the appropriate rating units. This may cause proposed values to be incorrect. Recommendation: Systems should be in place to check that all data fields are complete and accurate. These fields should be reviewed in conjunction with the review of values during each general revaluation. This observation indicates existing controls are causing occasional non-compliance that requires improvement for effectiveness and management attention. Gisborne District Page 4 of 10

6 Valuation Service Provider Response: In broad terms this observation comes from the perspective that property categories form the basis of generating new values (ie an indexation approach is utilised to generate new values). The Landmass rural data base values each property using the traditional methodology that appropriately generates the correct values irrespective of the property category (the methodology is considered best practice for rating valuations of rural property). Hence there is no risk and effect as described above. However we recognise the need to have categories and production details correct. The rural valuation programme does hold accurate production detail so an audit function will be implemented to ensure that the DVR also hold the accurate data and that it is correct for each property category. Territorial Authority Response: Council is pleased to note that our VSP has continued to consistently maintain their high standards with the sound management practices and systems that are in place. I acknowledge that the clear understanding of requirements, excellent local knowledge and the thorough revaluation basis provided by skilled staff is recognised with the sound ranking given by the OVG. Implementation Date: Name of Responsible Official: All future revaluations Garth Laing, Mark Grinlinton Gisborne District Page 5 of 10

7 Appendix 1-Audit Approach Scope The review scope included the assessment of: the valuation methodologies used in the revaluation the market evidence that supported the proposed values the analysis of the market evidence and justification of conclusions made whether the conclusions were clearly summarized to support the basis the basis has been applied consistently an adequate level of property inspection had been undertaken whether appropriate processes were in place to support the above the overall quality of management control. The assessment was performed against the Rating Valuations Act 1998, the Rating Valuations Rules 2008, the audit engagement letter, terms of reference and the guidelines provided in the Rating Revaluations Handbook. Work Performed The Office of the Valuer-General (OVG) is based within Land Information New Zealand and regulates the rating valuation industry. The Valuer-General ensures that local authorities have effective controls and processes in place to comply with regulation including legislation, rules and guidelines. Work performed by the OVG during the revaluation audit is detailed below: Revaluation Basis and Audit Files For audit purposes the completeness, quality and accuracy of the revaluation basis and audit files is crucial in obtaining certification for any general revaluation. On receiving the revaluation basis and audit files an analysis was undertaken to determine their completeness. The objective was to ensure that all property categories had been adequately researched and that sufficient market analysis had been carried out to support the level of values adopted. You were required to supply details of each sector of the market and to clearly document compliance with the requirements of the audit engagement letter and the terms of reference. Where information was missing or conclusions were difficult to follow additional detail was requested. The supply of a comprehensive revaluation basis and validated audit files provides a higher level of confidence in the revaluation. It also allows the audit process to be carried out more efficiently and ensures consistency in ongoing maintenance of the DVR. Prior to the on site review the audit files were analysed through a standard series of automated electronic queries and comprehensive statistical tests. Where the results of this analysis identified any anomalies or exceptions, individual spreadsheets were sent to the valuation service provider for their review and comment. Gisborne District Page 6 of 10

8 On Site Review In conjunction with the above requirements, it is also essential that effective management controls and office processes are in place to complete the revaluation. The on site review included: interviewing staff testing the effectiveness of processes and controls in place to meet the requirements of the Rating Valuations Rules supplementing any further information that was missing in the basis discussing any key issues raised from pre on site review electronic queries and statistical tests sighting and obtaining additional documentation which formed part of the revaluation reviewing the overall accuracy of the audit file by checking the analysis and value conclusions, along with whether these were applied correctly identifying areas where additional information or further analysis was required post the site audit to either justify or adjust proposed values prior to certification. During this review interviews were held with the following personnel in order to obtain information about the processes, risks and controls: Name of Interviewee Barry Vryenhoek Fiona Scragg Simon Jeune Garth Laing Ben Inder Russell Oliver Designation Chief Financial and Information Officer, Gisborne District Council Revenue Team Leader, Gisborne District Council Information Manager, Gisborne District Council Director and Registered Valuer, Landmass Technology Limited Registered Valuer, Landmass Technology Limited Valuer, Landmass Technology Limited Additionally, the following controls for key processes were noted and tested to assess their operating effectiveness: Key Process Controls: the valuation methodologies used in the revaluation review of the changes, if any, that had occurred in the market since the last revaluation documentation of the market evidence that supported the proposed values analysis of the market evidence and the justification of conclusions made the conclusions were clearly summarised to support the basis the basis had been applied consistently a sufficient level of property inspection had been undertaken the overall quality of management control including the council assurance statement responses the general quality of the DVR base data The Valuer-General does not undertake the revaluation, rather an audit is completed to investigate the effectiveness of the above controls. Gisborne District Page 7 of 10

9 Appendix 2-Ranking Explanation Based on information gathered during the last fifteen years those elements that constitute an acceptable basis standard have been identified. The aim is to improve the completeness, accuracy and presentation of the initial revaluation basis as well as ensuring an adequate level of field inspection and quality control is undertaken. It is hoped that the necessity for on site auditing will be reduced as bases are improved. Any reductions in on site audits will be dependent on receiving consistently high quality bases supported by effective management controls. Eight key areas of the revaluation process have been identified and a ranking has applied to the performance in each area. The key areas are as follows: Presentation of Basis Evidence Analysis Evidence Conclusions Application of Values Working Basis Inspections of Sold Properties General Property Inspections Quality Control Where the information, and/or the amount of fieldwork, and/or the level of quality control was insufficient further details of these inadequacies are appended as observations to this report. Ranking Explanation of ranking by key area Presentation of Basis: Basis is structured logically and is factually correct. Evidence Analysis: Accurate and detailed analysis of all relevant evidence Evidence Conclusions: Indexes adopted were fully supported by market evidence Application of values: Proposed indexes were applied accurately in all cases. Working Basis: Fully comprehensive valuation guidelines for all property types within the TA. Inspections of sold properties: Comprehensive inspection of sold properties. General property inspections: Comprehensive inspection of non-sold properties. 5 Included some internal inspections. Quality Control: A fully comprehensive basis, which is easy to follow and includes all information requested in the audit terms of reference. Good management quality control and sound best practice checks in place. 4 No further information is needed prior to the OVG on site audit. The basis clearly sets out methodology, analysis and summary of key sales/rentals, market comments and conclusions. Comprehensive property inspections and quality control measures. Presentation of Basis: Basis is structured logically and mostly correct. Evidence Analysis: Accurate and detailed analysis of most relevant evidence. Evidence Conclusions: Indexes adopted were mostly supported by market evidence. Application of Values: Proposed indexes were applied accurately in almost all cases. Working Basis: Comprehensive valuation guidelines for most property types within the TA. Inspections of Sold Properties: Adequate inspection of sold properties. General Property Inspections: Adequate inspections of non-sold properties. Quality Control: A reasonably comprehensive basis, which is able to be followed and includes most of the information requested. A good overall standard of quality control by management and adequate best practice checks in place. Gisborne District Page 8 of 10

10 3 2 1 Some further information needs to be supplied during the OVG on site audit. Most aspects of the revaluation are clearly set out in relation to methodology, analysis and summary of key sales/rentals, market comments and reasons for selection of conclusions. Good level of property inspections and quality control measures. Presentation of Basis: Basis is hard to follow and/or has some factual errors. Evidence Analysis: Inadequate analysis of evidence Evidence Conclusions: Indexes adopted were not always supported by market evidence. Application of Values: Proposed indexes were not always applied accurately. Working Basis: Inadequate valuation guidelines for some property types within the TA. Inspections of Sold Properties: Inadequate inspection of sold properties. Valuers do not have sufficient knowledge of the sales. General Property Inspections: Lack of sufficient inspection of non-sold properties. Quality Control: An inadequate basis, which was time consuming to follow and lacked some essential elements. Insufficient quality control by management and inadequate best practice checks. Requires a reasonable amount of follow up work. Partial information supplied in relation to methodology, analysis and summary of key sales/rentals. Market comments and reasons for selection of conclusions are difficult to follow. Inadequate level of property inspections and quality control measures. Presentation of Basis: Poor basis presentation and/or a significant number of factual errors. Evidence Analysis: Substandard analysis of relevant evidence. Evidence Conclusions: Indexes adopted were generally not supported by market evidence. Application of Values: Proposed indexes were generally not applied accurately. Working Basis: Lacks sufficient valuation guidelines for most property types in the TA. Inspections of Sold Properties: Poor level of inspection of sold properties. General Property Inspections: Poor level of inspection of non-sold properties. Quality Control: An inferior standard of basis, which is difficult to follow and lacks sufficient detail. Generally poor quality control by management. Substantial follow up work is required during and after the OVG office visit. Insufficient detail supplied in relation to methodology, analysis and summary of key sales/rentals, market comments and reasons for selection of conclusions. Significant additional basis detail is required prior to an on site audit. Poor level of property inspections and quality control. Presentation of Basis: Unstructured basis and/or significant factual errors. Evidence Analysis: Complete lack of analysis of evidence. Evidence Conclusions: Indexes adopted were not supported by market evidence. Application of Values: Proposed indexes were mostly applied inaccurately. Working Basis: Few or no valuation guidelines for property types within the TA. Inspections of Sold Properties: Complete lack of effective sales inspection. General Property Inspections: Complete lack of inspection of non-sold properties. Quality Control: A poor basis, which is difficult to follow and does not provide the level of detail required for commencement of an audit of the VSP office. Generally poor quality control. Inadequate information in relation to methodology, analysis of key sales/rentals, summary of key sales/rentals, market comments/conclusions and guide to the application of values in the field. Completely re-submit items of basis if necessary. This may result in significant additional costs to the Territorial Authority due to increased audit time. Gisborne District Page 9 of 10

Peer & Independent review Feedback and additional guidance paper august 2009

Peer & Independent review Feedback and additional guidance paper august 2009 2 Disclaimer This paper is intended to provide up to date feedback and additional guidance to that contained within Lloyd s