Invercargill City Council's 2025/26 annual report has received a clean audit opinion, but only after the auditor found two significant errors in earlier years' accounts that had to be put right.
The report went to an extraordinary council meeting on Monday 2 November, where staff recommended councillors adopt it. The council's Risk and Assurance Committee had reviewed the draft on 27 October and recommended adoption. Minutes of the 2 November meeting have not yet been published.
According to the auditor's report to the council, included in the agenda, a review of the council's property, intangible assets and work in progress found "material amounts capitalised in the current and prior years that did not meet the requirement of the relevant accounting standards". Capitalising a cost means recording it as an asset on the balance sheet rather than as everyday spending.
Correcting those errors "increased the current year reported deficit before tax by $4.3 million and decreased the prior year's equity by $6.0 million", says the report by The Audit Office.
Note 34 of the annual report says some costs from the council's "digital enhancement program" had been wrongly booked as intangible asset work in progress when they should have been expensed. The annual report does not give a total cost for the programme.
The restatement adds $1.831 million to general expenses for 2024/25, turning that year's council deficit after tax from $269,000 into $2.1 million. Retained earnings at 30 June 2025 drop by $6.042 million, of which $4.211 million relates to the years before July 2024.
Water money in the wrong column
The second error concerns metered water. The annual report says revenue from metered water had been recorded as fees and charges when it should have been counted as targeted rates. The auditor describes this as a misreading of the legal requirement to treat a volumetric water rate as a targeted rate. For 2024/25, $3.266 million has been shifted from fees and charges into rates.
That matters because the council's financial strategy limits how fast its rates revenue may grow. Moving the water money into the rates column raises the measured rates figure, and the annual report says the change means the rates increase benchmark is "now being breached for the 2022/2023 and 2024/2025 years".
For 2022/23, the report says rates revenue rose 8.5%, which equalled the limit until the restatement tipped it over. For 2024/25, it says the restated increase also went past the limit. Rates revenue grew 8% that year because the rating base expanded, although the report notes existing ratepayers saw a smaller rise.
One error left uncorrected
The auditor says every misstatement found during the audit was fixed except one: an extrapolated error from the 2024 revaluation of three waters assets, which overstates property, plant and equipment, and equity, by $8.4 million. An appendix explains that the 2024 valuation relied on forecast cost indices that turned out higher than the indices later published.
The opinion itself is unmodified, the auditor's term for a clean result. It carries an "emphasis of matter", a note drawing readers' attention to an issue, about the uncertainty created by the Government's local government reforms and the Local Government Commission's investigation into reorganising Southland's councils.
Unsigned loan papers
The auditor also raised the council's $12.7 million loan to Invercargill Central Limited. "Our reading of the unsigned loan documentation indicates the possibility that the $10 million fixed-interest component of the loan matures in June 2027 and should therefore be classified as current," the report says. A current liability or asset is one due within a year.
The auditor asked the council for a specific written representation on the point and "recommended that the agreement be formalised and signed as a matter of urgency". The report notes Invercargill Central Limited classed the loan as long-term in its own accounts after a review by KPMG.
A nudge for councillors
In an appendix on the quality of information supplied for the audit, the auditor says supporting financial information and papers on complex transactions "are often prepared after auditor queries". It says: "We encourage councillors to be more proactively involved in assessing the judgements made by management", and notes some earlier recommendations remain outstanding.
Overall, the council reports an operating deficit after tax of $8.5 million for 2025/26, $2.0 million better than planned but $6.4 million worse than 2025. The audit fee was $445,060, excluding GST.
The adoption report, by the council's chief financial officer, says a summary version of the annual report is being prepared and must be completed by a statutory deadline of 30 November.
The Herald has asked Invercargill City Council for comment.
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