Source: https://www.oag.govt.nz/2009/2008-09/part2.htm
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Part 2: Our output classes, performance measures, and targets (including Statement of service performance) — Office of the Auditor-General New Zealand
Part 5: Financial statements 2008/09
Appendix 1: Summary of reports on performance audits, inquiries, and other studies published in 2008/09
Appendix 4: Approach and method used for our stakeholder feedback interviews and client surveys
Summary Annual Report 2008/09
Part 2: Our output classes, performance measures, and targets (including Statement of service performance) Annual Report for the year ended 30 June 2009. https://www.oag.govt.nz/2009/2008-09/part2.htm https://www.oag.govt.nz/@@site-logo/controller_ag_international_400x37.png
Our output classes and the outputs within those classes are:
This output class relates primarily to the Auditor-General’s statutory duty to carry out annual audits of the financial reports, and in some cases performance information, of just over 3900 public entities, including the Financial Statements of the Government. This output class also includes other audits that the Auditor-General is required to do by statute, such as the three-yearly audits of local authorities’ LTCCPs, and other assurance services provided to public entities on behalf of the Auditor-General. The cost of this work is funded mainly by fees paid by the public entities being audited. In 2008/09, annual audits and other assurance services accounted for 87% of our total expenditure.
The major portion of the output class relates to annual audits. There are several key processes that support the annual audit work, including:
appointing auditors and monitoring audit fees;
setting the Auditor-General’s auditing standards;
maintaining auditor independence; and
There are two main products from an annual audit:
the audit report; and
the management report.
For some public entities, there is also a financial review report.
The audit report is addressed to the readers of the financial statements and, where applicable, of the performance information. It provides the auditor’s independent opinion (the audit opinion) on whether the financial statements (and, where applicable, the performance information) fairly reflect the public entity’s performance and financial position. If the financial statements fairly reflect the public entity’s financial performance and position (and, where applicable, the service performance information), the auditor issues an audit report with an unqualified opinion. However, if the auditor identifies a material1 error or omission in the financial statements or performance information, the auditor issues an audit report with a qualified opinion.
The management report is addressed to the governing body or the senior management of public entities. It sets out any significant issues identified by the auditor during the audit and provides recommendations for improving the public entity’s controls, systems, and processes.
Where public entities are subject to financial review by a select committee, we also report the results of annual audits to responsible Ministers and select committees. The report includes a grading for each public entity, based on our assessment of their management control environment, and financial and service performance (where required) systems and controls.
The Auditor-General appoints auditors to carry out the annual audits of public entities. These auditors are appointed from a group of about 60 audit service providers. The group includes Audit New Zealand and private sector accounting firms, which range from the four major chartered accounting firms to sole practitioners. Most audits are allocated directly to an auditor, but from time to time an auditor is appointed to an audit after a competitive tender.
Because we mainly use an allocation approach, we monitor audit fees at the point of negotiation between the appointed auditor and the public entity. We also provide a comparative analysis to help resolve any concerns about proposed audit fees. Our objective in monitoring fees is to ensure that fees are based on realistic hours (that is, hours that reflect the nature and extent of work required) and charge-out rates that are in line with market rates. We aim for fees that are fair to the public entities and also provide a fair return to the auditors for the work required by them to meet the Auditor-General’s auditing standards.
During 2008/09, the Auditor-General appointed or reappointed the existing auditors to conduct the audits of 159 public entities and their subsidiaries (excluding 134 non-fee audits).
The Auditor-General’s auditing standards
Section 23 of the Public Audit Act 2001 requires the auditing standards of the Auditor-General to be published, by way of a report to the House of Representatives, “at least once every 3 years”. The Auditor-General’s Auditing Standards were most recently published in May 2008. These standards are available on our website (www.oag.govt.nz).
Section 23 also requires that each annual report include a description of any significant changes made to the standards during the year. During 2008/09, we updated the following standards:
We updated the Auditor-General’s Auditing Standard 1: Reporting to the OAG (AG-1) to clarify the information that auditors who carry out audits on behalf of the Auditor-General must provide to the OAG.
We also revised the Auditor-General’s Auditing Standard 4: The Audit of Service Performance Reports (AG-4). The revised AG-4 will be progressively applied to the audits of public entities that are required to prepare a Statement of Service Performance (or equivalent document) in its annual report and where the Statement of Service Performance is required to be audited. The primary intention of the revised AG-4 is to increase audit focus on the meaningfulness of non-financial reporting.
Work is currently under way to incorporate into the Auditor-General’s auditing standards any changes considered necessary in respect of a new set of auditing standards that are being progressively introduced by the New Zealand Institute of Chartered Accountants for application in New Zealand (New Zealand equivalents to International Standards on Auditing). These changes may require publication of the Auditor-General’s auditing standards earlier than May 2011, the next scheduled publication date.
High independence standards are set for both the Auditor-General’s employees and appointed auditors from chartered accounting firms. Compliance with these standards is monitored regularly. Any threats to auditor independence that were identified during the year were subject to mitigation actions that the Auditor- General considered appropriate to either eliminate the threats or reduce them to an acceptable level.
We carry out quality assurance reviews of appointed auditors to ensure that they have complied with the relevant professional standards, as well as the Auditor-General’s own published auditing standards. We aim to review the performance of each of our appointed auditors at least once every three years.
Measuring our performance for output audit and assurance services
Actual performance against impact measures and standards for output class: Audit and assurance services
2008/09 forecast main impact measures and standards
The number of public entities 'audited financial reports issued within the statutory timeframe is improved (or at least maintained), measured against the previous two years.1 Total audits due for completion in year: 3908
On time: 81% Total audits due for completion in year: 3946
On time: 78% Total audits due for completion in year: 3949
On time: 83%
The number of public entities’ audited financial reports containing qualified opinions is reduced (or at least maintained), measured against the previous two years. Total qualified opinions:
95 (2.4%) Total qualified opinions:
91 (2.3%) Total qualified opinions:
96 (2.4%)
Public entities’ acceptance of Audit New Zealand’s management report recommendations is improved (or at least maintained), measured against the previous two years. Accepted: 79%
Rejected: 11%
Noted, under consideration, or not responded to: 10% Accepted: 72%
Rejected: 4%
Noted, under consideration, or not responded to: 24% Accepted: 64%
Rejected: 1%
Noted, under consideration, or not responded to: 35%
Central government entities’ management control environment, financial information and service performance2 information systems and controls are improved (or at least maintained), measured against the previous two years. Assessments from 2007/08 audits
Management Control Environment:
Very good: 46%
Needs improvement: 10%
Financial Systems and Controls:
Very good: 32%
Good: 58%
Assessments from 2006/07 audits
Very good: 38%
Needs improvement: 11%
Very good: 21%
Not applicable – benchmark data was collected in 2007 for our first assessment of central government entities’ management control environment and financial systems and controls aspects.
1: Audits may not have been completed for several different reasons, including that the entity has not produced financial statements for audit, that the audit of the previous year’s financial statements has not been completed (and must be audited first), that there are delays on the part of the entity in responding to audit queries, that the audit is under way but the financial statements have not been available to us for more than 30 days, and that the audit is complete and waiting for the entity’s governing body to adopt the financial statements. The number of audits due in the year has reduced from 3946 last year to 3908 this year because the number of entities that have been disestablished or no longer require an audit exceed the number of new public entities. About 30 entities did not require an audit in the year as they are small non-active companies that are no longer required to prepare financial statements or have them audited because of changes in the Financial Reporting Act 1993.
2: Service Performance Information and Associated Systems and Controls will be graded for the first time under the new framework as part of the 2008/09 audits to be carried out in 2009/10.
Actual performance against output delivery measures and standards for output class: Audit and assurance services
2008/09 forecast measures and standards of output delivery
Less than 10% of the outstanding audit reports at 30 June 2009 are because of inaction on our part. Total arrears at 30 June: 429
Due to inaction on our part: 49% Total arrears at 30 June: 453
Due to inaction on our part: 55% Total arrears at 30 June: 362
Due to inaction on our part: 51%
All management reports are issued within six weeks of issuing the audit report. Issued within six weeks: 93% Issued within six weeks: 93% Issued within six weeks: 95%
No outstanding LTCCP opinions at 30 June 2009 are because of inaction on our part and all LTCCP management reports are issued within six weeks of issuing the LTCCP opinion.(New measure in 2008/09. LTCCP audits are carried out every three years.) 8% of LTCCP opinions were outstanding at 30 June 2009, one of which remained outstanding at 31 August 2009. No outstanding opinions were due to inaction on our part.
85% of LTCCP management reports were issued within six weeks of issuing the LTCCP opinion. N/A N/A
Client satisfaction survey shows that, overall, 75% of respondents are satisfied with the quality of audit work (including the expertise of staff and the quality of the entities’ relationships with their audit service provider). On a scale of 1 to 10, 80% of respondents gave overall service ratings of 7 or greater. On a scale of 1 to 10, 75% of respondents gave overall service ratings of 7 or greater. On a scale of 1 to 10, 68% of respondents gave overall satisfaction ratings of 7 or greater.3
﻿Quality assurance reviews for all appointed auditors are completed during a three-year period. Of the auditors reviewed in any given year, 95% achieve a result of satisfactory or better. All completed.
Achieved satisfactory or better: 100% All completed.
Achieved satisfactory or better: 93% All completed.
Achieved satisfactory or better: 84%
An annual independent review of our processes confirms the probity and objectivity of the methods and systems we use to allocate and tender audits, and monitor the reasonableness of audit fees. Review undertaken and confirmation provided (see pages 40–42 for the Reviewer’s report). Review undertaken and confirmation provided. Review undertaken and confirmation provided.
The Officers of Parliament Committee accepts any significant proposals for an appropriation increase in audit fees and expenses. No significant proposal made for an appropriation increase in audit fees and expenses. However, a request for an increase in appropriation of $50,000 for audits of smaller entities (Cemetery Trusts and Reserve Boards) was not accepted by the Officers of Parliament Committee. No significant proposal made for an appropriation increase in audit fees and expenses. Not applicable – new measure for 2007/08.
3: In 2006/07, the client satisfaction survey was confined to public entities audited by Audit New Zealand.
Audit completions, reporting, and arrears
An important aspect of the performance of public entities is the issuing of audited financial statements within statutory time frames. We want those interested in the accountability of public entities to receive our audit assurance as soon as possible after the end of the financial year.
As Figure 4 shows, not all public entities met their statutory time frames. Overall, the timeliness of audit completions improved slightly from the previous year, with 81% of the audits due for completion in the year being finished within the statutory time frame, compared with 78% and 83% in the previous two years.
Therefore, we achieved our performance measure in that the number of public entities’ audited financial reports issued within the statutory time frame was at least maintained, measured against the previous two years.
In the schools sector, the number of audits completed on time was better than in the last two years, at 93% compared with 86% and 91%.
In the central government sector, the number of audits completed on time reduced from 66% and 64% to 58%. The reasons for this reduction are summarised in the comment on individual sectors below.
In the local government sector, the number of audits completed on time reduced from 74% in 2006/07 and 64% in 2007/08 to 60% in 2008/09. Again, the reasons for this reduction are summarised below. The main deteriorating indicator of audits completed on time relates to “Other local government entities”. This group comprises many small and often voluntary-type entities associated with local government or the provision of local services, such as cemetery trusts. Clearance of these audits can vary substantially and, at times, require us to follow up in obtaining the annual reports before we can carry out the audit. Our capacity to do so in 2008/09 was significantly affected by the resource commitment of our auditors to the triennial audit of LTCCPs. The effect of LTCCP audits on our annual audit obligations remains a concern.
Audits completed on time
Total audits due in 2008/09**
Number on time in 2008/09
Percentage on time in 2008/09
Percentage on time in 2007/08
Percentage on time in 2006/07
Government departments 41 41 100% 100% 100%
State-owned enterprises 113 46 41% 46% 52%
District health boards 48 32 67% 64% 69%
Tertiary education institutions 134 82 61% 72% 67%
Crown Research Institutes 58 21 36% 51% 58%
Other entities*** 309 187 61% 67% 68%
Central government total 703 409 58% 64% 66%
Local authorities 85 77 91% 88% 99%
Other council organisations 211 151 72% 77% 78%
Energy companies 57 49 86% 75% 97%
Ports and airports 57 47 82% 80% 94%
Licensing trusts 44 18 41% 64% 71%
Fish and game councils 14 14 100% 100% 100%
Other local government 210 54 26% 37% 52%
Local government total 678 410 60% 64% 74%
Schools 2527 2338 93% 86% 91%
Total for all sectors 3908 3157 81% 78% 83%
* In all of the sectors except government departments and local authorities, we have included any related subsidiaries within the total of the main entities.
** “Total audits due” is the number of audits in each sector with an expected completion date between 1 July 2008 and 30 June 2009.
*** The “Other entities” group in the central government sector includes Māori Trust Boards, Rural Education Activity Programmes, section 19 audits, subsidiaries of government departments, Crown entities not separately identified, Crown agents, and miscellaneous other central government entities.
Figure 5 shows the number of audits outstanding at 30 June 2009. As our Annual Plan 2008/09 anticipated, the number of audits outstanding increased in the previous year, from 362 at 30 June 2007 to 453 at 30 June 2008. We are pleased to record that the number has been reduced to 429 at 30 June 2009.
Audits outstanding at 30 June
Total audits due in 2008/09
Percentage of Arrears at 30 June 2009
Arrears at 30 June 2007
Government departments 41 0 0% 0 0
State-owned enterprises 113 0 0% 0 3
District health boards 48 12 25% 12 13
Tertiary education institutions 134 42 31% 23 33
Crown Research Institutes 58 0 0% 4 3
Other entities* 309 69 22% 50 54
Central government total 703 123 17% 89 106
Local authorities 85 0 0% 4 2
Other council organisations 211 24 11% 17 21
Energy companies 57 8 14% 12 3
Ports and airports 57 5 9% 2 0
Licensing trusts 44 9 20% 8 5
Fish and game councils 14 0 0% 0 0
Other local government 210 163 78% 141 92
Local government total 678 209 31% 184 123
Schools 2527 97 4% 180 133
Total for all sectors 3908 429 11% 453 362
* The “Other entities” group in the central government sector includes Māori Trust Boards, Rural Education Activity Programmes, section 19 audits, subsidiaries of government departments, Crown entities not separately identified, Crown agents, and miscellaneous other central government entities.
While audits in arrears have increased in the central and local government sectors, they have nearly halved in the schools sector. The increase in the central government sector is mainly because of increases in the tertiary education sector and the “Other entities” group.
We intend to continue monitoring and managing the number of arrears to ensure that arrears attributable to auditor performance are addressed. This will include continuing to seek explanations from auditors who do not meet our expectations, and taking action where necessary.
Our assessment is that 49% of the arrears at 30 June 2009 were caused by inaction on our part, compared with 55% at the end of the previous year. The target of less than 10% of the outstanding audit reports at 30 June being caused by inaction on our part is particularly challenging, and is unlikely to be achieved until we have managed to bring total arrears down from the current level to about 150. We will be working with our audit service providers to ensure that the main obstacles to prompt completion of audits are removed, with the objective of significantly reducing both the number of arrears in total and those that are our responsibility.
As mentioned in last year’s annual report, priority has been given to audit work in larger public entities at the expense of smaller audits such as cemeteries and administering bodies (for example, hall boards).
In the medium term, we would like to see more public sector audits completed on time. We will also be monitoring more closely, and seeking to improve, our own timeliness in completing audits and reporting.
We comment on the individual sectors below.
Central government and local government sectors
Only 58% of audits in the central government sector were completed within the statutory time frame in 2008/09, compared with 66% and 64% in the previous two years. The main sub-sectors in which there was a reduction in audit timeliness were State-owned enterprises, Crown Research Institutes, education institutions, and other entities. The main reason for the reduction in the completion rate was because of not completing audits of subsidiary companies on time. This was because auditors continued to give priority to completing group accounts, with most subsidiaries not being material to the group accounts. We intend to ensure that auditors give sufficient priority to completing audits of subsidiaries, to improve our overall performance. In addition, in the tertiary education sector, a significant audit issue affecting a number of audits was identified late in the audit process. It affected the timely completion of these audits.
In the local government sector, 60% of audits were completed within the statutory time frame in 2008/09 compared with 74% and 64% in the previous two years. Consistent with the effect on clearance of other local government audits during 2008/09, the effect of diverting resources to the triennial audit of LTCCPs contributed to a lower clearance of audits of entities in the “Other local government” group.
Most of the public entities subject to audit by the Auditor-General are schools. Our target is to complete more than 90% of school audits within the statutory time frame and 99% within 12 months of balance date. The statutory date for school audits is 31 May, only a month before the end of our reporting year, so there will always be a reasonable number of school audits in arrears at 30 June.
Only 86% of school audits were completed on time in 2007/08, and 180 were in arrears at the end of the year (7% of the total). The main reason for the slower completion rate in 2007/08 was the transition to new accounting standards (NZ IFRS). We worked closely with the Ministry of Education to mitigate the effect of the transition, but it was inevitable that such a major change would cause difficulties in many schools.
We are pleased to report that in 2008/09 we managed to achieve the same level of performance as earlier years, with more than 90% of audits being completed by the statutory deadline and more than 99% being completed within 12 months of balance date. The number of school audits outstanding at 30 June 2009, excluding subsidiaries, was the lowest on record for the end of our reporting period.
Management reports issued within six weeks
This year we issued 93% of our draft or final management reports within six weeks of signing the audit report, which is about the same level of performance as in the previous two years (see Figure 6). We intend to increase the focus on timely completion of management reports during 2009/10.
on time in
Government departments 42 38 90% 100% 95%
State-owned enterprises 115 111 97% 87% 98%
District health boards 50 44 88% 84% 80%
Tertiary education institutions 122 92 75% 80% 95%
Crown Research Institutes 65 65 100% 100% 100%
Other entities** 307 272 89% 90% 92%
Central government total 701 622 89% 89% 94%
Local authorities 91 64 70% 64% 75%
Other council organisations 207 154 74% 70% 77%
Energy companies 55 48 87% 97% 95%
Ports and airports 54 47 87% 81% 84%
Licensing trusts 39 20 51% 67% 93%
Fish and game councils 14 13 93% 100% 100%
Other local government 182 156 86% 85% 88%
Local government total 642 502 78% 78% 84%
Schools 2598 2545 98% 98% 98%
Total for all sectors 3941 3669 93% 93% 95%
* The total number of management reports due in 2008/09 is not the same as the “Total audits due in 2008/09” shown in Figure 6. This is because the due dates of management reports are dependent on, but different to, the dates that audits are completed. The dates used are audit reports issued between 20 May 2008 and 19 May 2009, which is six weeks before the year end.
** The “Other entities” group in the central government sector includes Māori Trust Boards, Rural Education Activity Programmes, section 19 audits, subsidiaries of government departments, Crown entities not separately identified, Crown agents, and miscellaneous other central government entities.
We did not achieve our target of issuing all management reports within six weeks of issuing the audit report. However, our achievement rate of 93% was similar to the previous two years. The completion rate in the schools sector remained high at 98%. In the central and local government sectors, our completion rate was less than 90%.
In the central government sector, our completion rate of 89% was the same as last year. Results in the tertiary education sector and the “Other entities” group are the main reasons why our performance has remained below target. We intend to investigate the reasons for this under-performance, and establish measures to ensure that auditors meet the target consistently.
We note with concern that the clearance rate for local government management reports has varied. Our performance appears to have reached a plateau in the 75–85% range. We consider this unsatisfactory and will investigate further why there are delays in reporting.
Results of our annual audit opinions and Ministerial reporting
Results of our annual audit opinions
A qualified audit report is issued in accordance with the NZICA Auditing Standard No. 702: The Audit Report on an Attest Audit (AS-702). AS-702 provides for three types of qualified audit opinions (that is, a disclaimer of opinion, an adverse opinion, or an except-for opinion) that may be issued in different situations.
A fuller definition of a qualified audit report and the situations where the different types may be issued are set out in our report Central Government: Results of the 2007/08 Audits (parliamentary paper B.29[09b], 2008, pages 37–40). Figure 7 provides an analysis of all qualified audit reports issued in 2008/09. Information for the previous two years is provided for comparison.
Qualified audit reports issued
Type of qualified audit report
Disclaimer of opinion 4 1 6
Adverse opinion 13 12 10
Except-for opinion 78 78 80
Total of qualified audit reports 95 91 96
Total of all audit reports due 3908 3946 3949
% qualified 2.40% 2.30% 2.40%
The proportion of qualified audit reports issued compared to the number of audits due for completion was relatively stable during the three-year period.
Details of the qualified audit opinions issued in the 2008 calendar year are included in our parliamentary papers B.29[09b] and B.29[09c]:
Central government: Results of the 2007/08 audits; and
Local government: Results of the 2007/08 audits.
Results of 2009–19 LTCCP audits
Under the Local Government Act 2002, we have the statutory responsibility to report on the “fit for purpose” quality of the LTCCPs prepared, consulted on, and adopted by each local authority. We issue audit opinions on both the proposed LTCCP and the version finally adopted. We reported fully on our first involvement in auditing LTCCPs after 2006.2
For their 2009–19 LTCCPs, each local authority was required to complete the process so that their adopted LTCCP was operating on 1 July 2009. Of the 85 local authorities, 92% completed their statutory responsibilities by 30 June 2009. Of the seven local authorities completing their responsibilities after 30 June 2009, one has yet to adopt its final LTCCP. The work was intensive, particularly from February to June 2009. It dominated the workload of our audit service providers and, as noted earlier, was a factor in some deteriorating performance in our annual audit commitments.
All of our audit opinions were provided within the time required by the local authority. Our reporting included a number of “non-standard” audit reports, as detailed in Figure 8.
Non-standard audit reports issued on 2009–19 LTCCPs
Adverse Except-for Emphasis of
LTCCP for consultation 8 1 4
Adopted LTCCP (after consultation) 4 0 14
A number of local authorities were able to remedy defects with the draft LTCCPs before their final adoption.
Of the 84 local authorities that have completed the process, only four had matters so significant that, in our view, the adopted LTCCP was rendered inadequate for its purpose.3 In those four cases, we issued an adverse opinion on the adopted LTCCP.
An “emphasis of matter” is a reporting method we use to highlight significant matters that we consider should be drawn to the attention of the reader. Ten of the 14 emphases of matter relate to uncertainties about long-term plans arising from the ongoing reorganisation of local government in Auckland.
We are planning to report fully to Parliament in 2010 on our observations on auditing the 2009–19 LTCCPs.
Acceptance of Audit New Zealand’s management report recommendations
Figure 9 provides an analysis of public entity acceptance of Audit New Zealand‘s management report recommendations. It is pleasing to see a trend of increasing acceptance of our recommendations. Although the percentage of recommendations rejected has increased, this was matched by a reduction in the recommendations noted, being considered, or not responded to.
Entity acceptance of Audit New Zealand’s management report recommendations
The results of our client satisfaction survey continue to exceed our target of 75% of respondents rating service as 7 or greater on a scale of 1 to 10. Overall, the client satisfaction survey resulted in an overall satisfaction rating of 80% (2008/09) compared with 78% (2007/08).
There are five levels of quality assurance rating, assessed using the reviewers' overall judgement of the quality of the audit work carried out. The five levels are "excellent", "very good", "good", "satisfactory", and "re-review".
We reviewed 45 appointed auditors during 2008/09. All auditors we reviewed received a grade of satisfactory or above.
Of the 44 appointed auditors reviewed during 2007/08, three received a rating of re-review. Follow-up reviews of appointed auditors are normally carried out within the next year.
Our independent reviewer again assessed our audit allocation and fee-setting and monitoring systems (the full report is included at pages 40-42). The reviewer concluded that the processes for allocating audits in the public sector and for setting fees in the financial year to 30 June 2009 have been carried out with due probity and objectivity.
However, there continues to be pressure on audit fees. During 2008/09, fees for all types of audits continued to be affected by the residual and ongoing costs associated with changes in auditing and financial reporting standards (including NZ IFRS) and the continuing higher costs of employing accountants and related audit staff.
Figure 10 summarises the movements in audit fees from 2006/07 to 2008/09, based on those audit fees that had been agreed at the time when the analysis was prepared. It shows how the factors described in the previous paragraph have continued to affect both the hours and the average hourly cost of carrying out audits in the public sector.
2007/08 to 2008/09
2006/07 to 2007/08
Government departments 40 6.7% 1.9% 4.8% 35 10.1% -2.9% 13.0%
State-owned enterprises 19 14.5% 7.6% 6.9% 16 7.5% 4.1% 3.4%
Crown entities 70 10.4% 4.7% 5.7% 37 7.5% 2.0% 5.5%
District health boards 21 7.2% 7.2% 0.0% 28 5.0% 0.1% 4.9%
Crown Research Institutes 9 16.3% 4.8% 11.5% 7 14.4% -2.0% 16.4%
Tertiary education institutions 26 3.4% 12.6% -9.2% 19 2.7% -0.9% 3.6%
Energy companies 23 20.1% 6.6% 13.5% 24 4.7% 6.4% -1.7%
Local authorities 91 5.9% 7.1% -1.2% 46 6.6% 2.2% 4.4%
Local government subsidiaries 192 10.3% 11.0% -0.7% 64 10.7% 2.8% 7.9%
Port companies 11 -0.8% 6.0% -6.8% 7 -3.3% 3.5% -6.8%
Licensing and community trusts 16 7.30% -5.8% 13.1% 12 6.7% 5.3% 1.4%
Māori Trust Boards 6 11.30% 0.8% 10.5% 2 10.4% 0.0% 10.4%
Schools 2445 0.60% -2.6% 3.2% 2456 12.3% 12.6% -0.3%
Other 74 4.00% 1.2% 2.8% 30 25.8% 15.0% 10.8%
Total 3043 6.7% 3.4% 3.3% 2783 9.1% 5.9% 3.2%
1. Movements in total audit fees comprise movements in audit hours and movements in charge-out rates of staff engaged on the audits.
2. Fee movements are based on those of entities with balance dates falling within the financial year of the Office (for example, fees for the 31 December 2008 audits of schools are included in the 2008/09 year).
Other 60,483 62,607 58,505 58,474
Expenditure (60,602) (62,757) (58,624) (58,750)
Surplus/(Deficit) 31 0 31 (126)
Because of its size, the independent reviewer's report is available as a separate image file. It concludes that:
"Taking everything into account, my conclusion is that the processes by which audits in the public sector have been allocated and fees have been set, in the financial year to 30 June 2009, have been carried out with due probity and objectivity."
This output class includes two outputs:
Parliamentary services – providing advice and assistance to select committees and other stakeholders; and
Controller function – carrying out the Controller function.
Through our annual audits, performance audits, and inquiries, the Auditor-General has a broad overview of public entities – individually and throughout sectors. Through our services to Parliament, we provide advice and assistance to select committees, Ministers, and individual members of Parliament, as well as to central agencies and other public sector representative groups, to assist them in their work to improve the performance and accountability of public entities.
The main ways in which we provide this advice and assistance are:
reports and advice to select committees to assist their financial reviews of government departments, Crown entities, and State-owned enterprises;
reports and advice to select committees to assist their examination of the Estimates of Appropriations and financial reviews; and
reports to responsible Ministers on the results of the annual audits.
We also provide advice and assistance through:
reports to Parliament and other constituencies on matters arising from our annual audits (including tabling two reports in Parliament on the results of our audits in central and local government);
responding to requests and participating in working parties on matters related to financial management and accountability with other stakeholders, including government departments, central agencies, local authorities, professional bodies, sector organisations, and other public entities; and
working with Auditors-General in other countries to encourage, promote, and advance co-operation in the field of public audit. This includes our role as Secretariat of the Pacific Association of Supreme Audit Institutions (PASAI), being a member of various committees of the International Organisation of Supreme Audit Institutions (INTOSAI), and being executing agent for the Pacific Regional Audit Initiative (funded by the Asian Development Bank, with co-financing from the Japan Special Fund and the Government of Australia).
Measuring our performance for output: Parliamentary services
Actual performance against impact measure and standard for output: Parliamentary services
2008/09 forecast main impact measure and standard
Select committees confirm that our advice assists them in Estimates of Appropriations examinations and financial reviews. 100% of respondents rated us as 4 or better on a scale of 1 to 5 as assessed through our stakeholder feedback interviews. 100% of respondents rated us as 4 or better on a scale of 1 to 5 as assessed through our stakeholder feedback interviews. 86% of respondents rated us as 4 or better on a scale of 1 to 5 as assessed through our stakeholder feedback interviews.
Stakeholder feedback on Parliamentary services impact
Actual performance against output delivery measures and standards for output: Parliamentary services
Reports and advice are given to select committees and Ministers at least two days before an examination, unless otherwise agreed. 100% 100% 100%
An internal review of a sample of financial review, Estimates, and Ministerial reports confirms that they meet relevant standards and procedures, including that reports are consistent in their framework and approach and are peer reviewed in draft. (The nature, extent, and frequency of the quality assurance review are determined based on risk. The review is carried out during a three-year period.) There was no internal review this year. Confirmed by internal review of a sample of reports. Confirmed by internal review of a sample of reports.
At least 85% of select committee members we seek feedback from rate the advice they receive from us as 4 or better on a scale of 1 to 5 for:
At least 85% of other stakeholders we seek feedback from rate the advice they receive from us as 4 or better on a scale of 1 to 5 for relevance and usefulness. 100% 100% 100%
Stakeholder feedback on Parliamentary services outputs
To assess the relevance, value, and timeliness of our advice and assistance to select committees, Ministers, and other stakeholders, we commission independent stakeholder feedback interviews (conducted for 2008/09 in June 2009). Stakeholder ratings for the quality and usefulness of advice to select committees increased slightly this year, to be above our target of 85% of select committee members rating our advice as 4 or better on a scale of 1 to 5 (see Figures 14 and 15).
Our measure of the extent to which our advice assists select committee members in their Estimates examinations and financial reviews has remained the same as last year – with all stakeholders who provided feedback rating us as 4 or better on a scale of 1 to 5 (see Figures 12 and 13). The stakeholder feedback report noted that the results show that the Office is continuing to perform at a high level, and that stakeholders value the professional, impartial advice and guidance they receive from the Office.
The report recommended that the Office assess the improvements suggested, but noted that:
… stakeholders commented that, while they were happy to suggest improvements, these were minor compared with their overall satisfaction and respect for the Office and the quality of its work.
It is pleasing that the new Parliament recognises and values the advice we provide. The results of the stakeholder feedback interviews are particularly pleasing in the context of the increase in the number of reports we provided this year compared to the previous year, and the more compressed time frame in which they were provided. In 2008/09, we provided 56 Estimate of Appropriation reports to the new select committees, compared to 51 last year. While we prepared a similar number of financial review reports this year compared to last year (85), we also prepared six reports to assist select committees with their first examinations of non-departmental appropriation reports. These reports were provided during the period of February–June rather than the typical period of October–June.
We also provided reports to incoming Ministers on the results of our recent work in their portfolios (in addition to our usual reporting of annual audit results), and briefed the incoming select committees on the role and functions of the Auditor-General and the assistance they could expect from the Office.
The improvements suggested by stakeholders included encouraging the Office to focus more directly on the issue of value for money for the taxpayer, showing how a report fits with any bigger picture information such as the Budget, and considering the extent to which the Office can play a greater and broader advisory role with select committees.
We will consider how we can address the suggestions for improvement. We are also continuing to consider how we can get greater input from select committees on their particular interests and concerns to better shape our reporting to their needs, while still performing our role of advising on the results of our audits and the observations and issues that arise from these.
Our last internal review of financial review, Estimates, and Ministerial reports carried out in March 2008 concluded that we have appropriate systems in place to meet the Office's responsibilities to provide advice to select committees on Estimates examinations and financial reviews, and that the key controls identified had been operating effectively. The review made several minor recommendations for improvement, which we have addressed.
The "Controller" function of the Controller and Auditor-General provides independent assurance to Parliament that expenses and capital expenditure of departments and Offices of Parliament have been incurred for purposes that are lawful, and within the scope, amount, and period of the appropriation or other authority.
The OAG and appointed auditors carry out standard operating procedures to give effect to the Controller function in keeping with the Auditor-General's auditing standards and the Memorandum of Understanding with the Treasury. This involves reviewing the monthly reports provided by the Treasury, and advising the Treasury of any issues arising and the action to be taken.
Each year, we report to Parliament on the significant issues arising from operation of the Controller function.
Measuring our performance for output: Controller function
Actual performance against impact measure and standard for output: Controller function
Expenses and capital expenditure of departments and Offices of Parliament are incurred for purposes that are lawful and within the scope, amount, and period of the appropriation or other authority. Where there is a breach, actions are taken in accordance with the Auditor-General's powers and auditing standards, and the Memorandum of Understanding with the Treasury. The operation of the monthly Controller process and the appropriation audit were carried out to ensure that this measure was achieved. The operation of the monthly Controller process and the appropriation audit were carried out to ensure that this measure was achieved. Not applicable – new measure for 2007/08.
Most of the government expenditure during 2007/08 was authorised by appropriations in the usual way. However, there were 32 instances of expenditure (adding up to $567 million) that were not authorised by Parliament. In 26 of the 32 instances (adding up to $330 million), expenditure was within the scope of the appropriation but more than the amount authorised by Parliament. In the other six instances, the expenditure was outside the scope of the appropriation. This is a relatively small amount of unauthorised expenditure compared to total government expenditure, but unauthorised expenditure is always a concern.
Common factors contributing to unappropriated expenditure include:
poor forecasting by departments;
departments not making timely requests for authority to spend; and
departments not specifying requests for authority clearly enough to accommodate the actual expenditure.
We continue to encourage departments to pay closer attention to ensuring that they have authority before incurring any expenditure. We also work with the Treasury to provide better guidance and support through the administrative systems that support the Crown's financial management.
A new Memorandum of Understanding with the Treasury has been finalised and has applied during the 2008/09 year.
Actual performance against output delivery measures and standards for output: Controller function
Monthly statements provided by the Treasury are reviewed for the period September to June inclusive. Advice of issues arising and action to be taken is provided to the Treasury and appointed auditors within five working days of receipt of the statement. All monthly procedures have been followed, and agreed time frames achieved. All monthly procedures have been followed, and agreed time frames achieved. All monthly procedures have been followed, and agreed time frames achieved.
Internal quality assurance is undertaken to gain assurance that our policies, procedures, and standards in relation to the Controller function have been applied appropriately. An internal review was carried out in May 2009, which confirmed the central work carried out was consistent with the Memorandum of Understanding and that the monthly processes operated effectively. There was considerable improvement in the appropriation audit approach and documentation to demonstrate compliance with the auditing standard. Review to be carried out in the first quarter of 2008/09, at the end of Controller function work for 2007/08. An internal review carried out in May 2007 confirmed that the design of the work to address the Controller function and appropriation audit is appropriate but that there was variable practice by auditors in applying the auditing standard. Several recommendations for improvement were made.
In May 2007, we carried out a quality assurance review of the processes underlying the Controller function and appropriation audit. Our review found that the design of work to address the Controller function and appropriation audit was appropriate, but there were some variable practices between auditors in demonstrating compliance with the auditing standard. We made several recommendations for improvement, mainly on revising audit procedures, improving documentation to demonstrate compliance with the auditing standard, and providing training for auditors of government departments. Action was taken to address the recommendations.
A follow-up review was carried out in May 2009. This review again found that the work carried out by the central Controller team was consistent with the Memorandum of Understanding, and that the monthly processes operated effectively. Regarding the appropriation audit work, the review found that there was considerable improvement in the audit approach and documentation to demonstrate compliance with the auditing standard. There are still some aspects that require more attention, to do with the evidence to support conclusions. The recommendations that we made will be actioned.
Crown 3,176 3,176 3,064 2,890
Other 7 0 6 9
Expenditure (3,173) (3,176) (3,014) (2,785)
Surplus/(Deficit) 10 0 56 114
Performance audits – reporting to Parliament and other constituencies on matters arising from performance audits and other studies, including good practice guides; and
Inquiries – carrying out and reporting on inquiries relating to central and local government entities.
In 2008/09, we published 19 performance audits, other studies, and inquiries. Appendix 1 on pages 117–123 summarises these publications. A copy of each report is also published on our website: www.oag.govt.nz.
Performance audits and other studies
A performance audit is a significant and in-depth audit covering issues of effectiveness and efficiency. It provides Parliament with assurance about specific issues or programmes and their management by the relevant public entity or entities. We also carry out other studies that may result in published good practice guidance on topical issues of public sector accountability and performance.
To select performance audits and studies, each year we scan the environment, identify issues, assess risk, and identify assurance responses, to help determine how we can use our discretionary resources to best effect.
In deciding the discretionary work programme, the Auditor-General considers that, regardless of any other work completed by the Office, the Auditor-General has a responsibility to Parliament and the public to provide regular assurance about the activities of public entities that are large and complex, and/or where it is difficult to assess their performance.
Core areas of interest for the Auditor-General include:
major public investment or liability management (focusing on the New Zealand Debt Management Office, Accident Compensation Corporation, New Zealand Superannuation Fund, Government Superannuation Fund, Earthquake Commission, and Student Loans Scheme);
major public revenue management or generation (focusing on the Inland Revenue Department and New Zealand Customs Service);
major asset management or infrastructure spending or management (focusing on health, correctional facilities, education, defence, conservation, transport, housing, and energy);
major expenditure including service delivery expenditure (focusing on health, education, and social security and welfare).
Guided by these core areas of interest, we identify areas within or throughout entities or sectors that warrant further examination. To assign priorities to these assurance interventions, we consider the:
severity and significance of the issue;
benefit to the public;
extent to which the performance or the public entity or sector could be improved; and
fit with the Auditor-General's role and mandate.
We consult with Parliament and other stakeholders on our draft annual plan (and in particular our proposed discretionary work programme) to ensure that stakeholders agree that we are addressing the issues of greatest relevance.
We describe our progress on the performance audits and other studies we proposed in our Annual Plan 2009/10 on pages 45–47.
Measuring our performance for output: Performance audits
Actual performance against impact measure and standard for output: Performance audits
Entities accept or respond to the recommendations made in our performance audits, as assessed by internal review of three reports of performance audits published in the previous year and selected by our independent Audit and Risk Committee. The results of these reviews are presented to the Officers of Parliament Committee. Three performance audit reports were selected by our Audit and Risk Committee for review and the results were presented to the Officers of Parliament Committee. The review concluded that our recommendations had been accepted by the relevant entities and either had been implemented or were being implemented. Three performance audit reports were selected by our Audit and Risk Committee for review and the results were presented to the Officers of Parliament Committee. The review concluded that our recommendations had been accepted by the relevant entities and either had been implemented or were being implemented. New measure for 2007/08. In 2006/07, however, three performance audits reviewed were selected by our Audit and Risk Committee and the results were presented to the Officers of Parliament Committee. Our review concluded that our recommendations had been accepted by the relevant entities in two cases, and some of our recommendations had been accepted in the third case. The accepted recommendations were being implemented at the time of our review.
For 2008/09, the summarised results of our reviews of entities' acceptance and response to recommendations made in three selected performance audits were as follows:
The public entities covered by our first selected report had accepted our recommendations and made changes to their policies and processes as appropriate. These changes raised awareness and understanding in the entities, and made management of the issues identified by our report more rigorous. Our report was strongly influencing the content and direction of guidelines being prepared for other entities in the sector.
The public entity accepted the key findings of our second selected report and committed to implementing our recommendations. In response to our findings on one issue, the entity set up a strengthening programme to address weaknesses. We followed up on progress with the strengthening programme as part of our annual financial audit and were satisfied that the entity's systems and practices in this area were improving.
The public entity had made good progress in implementing the recommendations of our third selected report. It had still to complete implementing some of them. We noted in our report that we expected the entity would continuously review and change its approaches as the organisation grew, and in response to changes in the environment it worked in.
Actual performance against output delivery measures and standards for output: Performance audits
We complete 19 to 21 reports on matters arising from performance audits and special studies, and inquiries.
Select committees and other stakeholders are satisfied with the proposed work programme of performance audits (as indicated by feedback on our draft annual work programme). We sought feedback on our proposed 2009/10 work programme on two occasions under section 36(1) of the Public Audit Act 2001.
The feedback mainly supported the approach we had taken to determining the proposed work programme. We sought feedback on two occasions under section 36(1) of the Public Audit Act 2001. The feedback mainly supported the approach we had taken to the proposed work programme and gave us guidance on the scope and relative emphasis we should place on one or two key studies. We sought feedback on two occasions under section 36(1) of the Public Audit Act 2001. The feedback mainly supported the approach we had taken to the proposed work programme, and gave us guidance on the scope and relative emphasis we should place on one or two key studies.
At least 85% of the stakeholders that we seek feedback from rate our performance audit reports (relevant to their sector or interest), as 4 or better on a scale of 1 to 5 for:
Our performance audit methodology reflects good practice for undertaking such audits, as assessed every second year by the Australian National Audit Office. The Australian National Audit Office reviewed two performance audits and confirmed areas in which the quality of our reports is strong and areas for us to improve. N/A. The Australian National Audit Office reviewed two performance audits looking at all aspects of the audit process, and endorsed the quality of the two audits.
Each year independent reviews of two performance audits are undertaken. These reviews confirm the quality of these reports in terms of the presentation of administrative and management context, report structure, presentation, and format (including use of graphics and statistics), and the reasonableness of the methodology used and the resulting conclusions and recommendations. Independent reviews of two performance audits confirmed areas in which the quality of our reports is strong and areas for us to improve. Independent reviews of two performance audits confirmed the quality of reports. Independent reviews of two performance audits confirmed the quality of reports.
Internal quality assurance reviews on selected performance audit reports confirm that reports are prepared in keeping with the performance audit methodology. (The nature, extent, and frequency of the quality assurance review are determined based on risk. The review is carried out during a three-year period.) There was no internal review this year. Internal review confirmed that appropriate systems and controls are in place, and that reports are prepared in keeping with the performance audit methodology. Internal review confirmed that appropriate systems and controls are in place.
Since we set the target of completing 19 to 21 reports each year on matters arising from performance audits, special studies, and inquiries, we are very pleased to have consistently achieved this. We completed 19 reports in 2008/09. While this is less than in the previous two years, our reports in 2008/09 included our Inquiry into immigration matters and our performance audit on the Department of Corrections: Managing offenders on parole, both major and sensitive pieces of work. During 2008/09, we also completed the bulk of work on several performance audits and special studies, and inquiries, which we intend to report in the first part of 2009/10. Each of the reports that we complete is unique and requires a different level of time and resource, so the number of reports that we produce can be expected to fluctuate from year to year.
We consult select committees and other stakeholders on our proposed annual work programme. The feedback we received this year on our proposed 2009/10 work programme mainly supported the approach we had taken to determining the programme. It included expressions of interest in particular areas of work or studies, guidance on the scope and relative emphasis we should place on one or two key studies, and suggestions for potential studies.
Each year, we also seek the views of a small sample of select committee chairpersons, deputy chairpersons, and other stakeholders on the quality and usefulness of the performance audit reports that we have published. A summary of our performance in the last three years against our target for stakeholder satisfaction with the quality and usefulness of our performance audit reports is shown in Figure 21.
Stakeholder feedback on performance audit outputs
For 2008/09, we are pleased that all of the stakeholders we surveyed rated the quality of our performance audits highly, exceeding our target. Independent reviews of some of our performance audits also confirmed areas of strength in our methodology and reports. These included:
our performance audits are soundly planned, clearly defining the scope and issues to be examined; and
our reports are logically structured, clearly written, and convey the key messages effectively.
For the second year in succession, two-thirds of the stakeholders we surveyed also rated the usefulness of our performance audits highly. This is below our target level of 85% of stakeholders rating the usefulness of our performance audits highly.
Feedback from stakeholders in 2008/09 included the suggestion that we present more information and analysis in our reports, to enable an assessment of value for money to be made (for example, more information and analysis on the costs and benefits of programmes). This feedback is consistent with that we received from independent reviews of some of our performance audits. During 2009/10 and 2010/11, we will be piloting an approach to carrying out audits with more focus on cost-effectiveness to determine how we can do this, the value it adds, and the affect such an approach has on the methods we use, the size of our reports, how we resource them, and how many we produce.
We also participated in a peer review of our performance audit methodology. Strengths of our performance audits and the underlying processes include:
sound planning process;
significant review and editing process; and
logical structure and clear writing style.
Areas suggested for improvement included:
reducing process description and increasing independent analysis; and
providing greater analysis of the impact of audit findings.
Relative to our international counterparts, the Office audits a very large number of public entities annually. We have very limited discretionary resources to carry out in-depth audit work, such as through performance audits, to provide Parliament with assurance about specific issues or programmes and their management by the relevant public entity or entities. This means that our performance audits are carried out with significantly lesser resource and costs than many of our peers. It also means that, at times, we are not able to do as much in-depth work as we would like. Our pilot study to examine cost-effectiveness will sit alongside other development work that we carry out in response to internal and external reviews of our methodology and reports to continuously strengthen the depth and relevance of our performance audits and other studies.
Progress against our Annual Plan 2008/09
On pages 61–62 of our Annual Plan 2008/09, we listed 25 performance audits and other studies that we proposed to start and/or complete in 2008/09.
Our actual work programme varies from that planned in response to changing priorities, such as urgent work on new inquiries, and changes in government policy or entity circumstances affecting the timing or relevance of audits.
To help accommodate these inevitable changes, the planned work programme includes more performance audits than our target of 19 to 21 reports on matters arising from performance audits, special studies, and inquiries.
Of the 25 performance audits and other studies listed in our Annual Plan 2008/09, we completed two earlier than planned (before the end of 2007/08), we completed eight in 2008/09, we started and partially completed work on another 10 that are ongoing, we started work on two more and then decided to postpone them, and we plan to start the remaining three in 2009/10.
Although not forming part of the 19 reports produced, Audit New Zealand also revises and updates model financial statements for various types of public entities, and in 2008/09 revised and reissued its model financial statements for council-controlled organisations. Figure 22 summarises our progress against our Annual Plan 2008/09.
Summary of progress against our Annual Plan 2008/09
Two performance audits completed earlier than planned (before the end of 2007/08):
The Accident Compensation Corporation's leadership in the implementation of the national falls prevention strategy; and
Eight performance audits and other studies completed as planned in 2008/09:
Ministry of Health: Monitoring the progress of the Primary Health Care Strategy;
Housing New Zealand Corporation: Maintenance of state housing;
Department of Corrections: Managing offenders on parole;
Workforce planning in Crown Research Institutes;
How government departments monitor Crown entities;
Electricity Commission: Review of the first five years;
Inland Revenue Department: Managing tax debt; and
Ten performance audits and other studies started and partially completed during 2008/09:
Civil Aviation Authority – follow-up of the Auditor-General's 2005 audit;
District health boards – effectiveness of managing patients in Active Review;
District Health Boards – procurement;
Local authorities – strategies to meet water demand;
Ministry of Defence and New Zealand Defence Force – Major acquisition project monitoring and reporting systems;
Ministry of Education (Group Special Education) – progress report on the Better Outcomes for Children action plan;
Ministry of Justice – management of Court workloads;
New Zealand Defence Force – Defence Sustainability Initiative;
Transit New Zealand – State highway maintenance; and
Work and Income – effectiveness of case management of sickness and invalid beneficiaries.
Two performance audits started and postponed during 2008/09:
Department of Building and Housing – implementation of the Building Act 2004;* and
Ministry of Education – effective management of the Crown's financial interest in integrated schools.**
Three performance audits and other studies now planned to be started in 2009/10:
District health boards – asset management planning;
Tertiary Education Commission – monitoring of tertiary education institutions; and
Transpower – managing the national grid.
* An audit assessing the effectiveness of the Department of Building and Housing's implementation of the Building Consent Authority (BCA) accreditation scheme was not carried out because the Department was planning a similar review. The Department commissioned PricewaterhouseCoopers (PwC) to carry out a review of the implementation of phase 1 of the BCA accreditation scheme. PwC's final report outlining the findings of the review was released on 29 May 2009.
** Preliminary work for the audit found that the Ministry of Education is aware of, and attempting to address, the ongoing risks associated with existing public funding arrangements of integrated school properties. Also, in the 2009 financial statements, all integrated schools should disclose their proprietors as related parties and disclose all transactions between the board of trustees and the proprietor. This should improve the transparency of financial transactions and how public funding is spent in integrated schools.
In addition to work on the performance audits and other studies listed in our Annual Plan 2008/09, during 2008/09 we completed two performance audits from our Annual Plan 2007/08 and published three other outputs. Some of our performance audit staff worked on major inquiries such as our Inquiry into immigration matters. Figure 23 summarises the additional performance audits and other studies we completed in 2008/09.
Summary of additional performance audits and other studies completed in 2008/09
Two performance audits completed from our Annual Plan 2007/08:
Maintaining and renewing the rail network*; and
Three other outputs:
Performance audits from 2007: Follow-up report;
The Auditor-General's views on setting financial reporting standards for the public sector; and
* Almost all of the work on this audit was completed during 2007/08. The report was presented to the House of Representatives on 1 July 2008.
Overview of inquiries in 2008/09
The Auditor-General has the discretion to inquire into a public entity's use of resources. We can carry out inquiries on our own initiative and when correspondence from the public draws attention to particular issues. We are also sometimes asked by a Minister responsible for a public entity, or an entity itself, to inquire into a matter of public concern about that entity.
In 2008/09, our inquiries work was dominated by several large, complex, and high profile inquiries that arose in this way; in particular, the inquiry into the Immigration Service. In May 2008, the then Prime Minister asked the Auditor-General to carry out a comprehensive inquiry into the concerns emerging about the operation of the Service and related recruitment issues. This inquiry was completed with the tabling of two reports in Parliament in June 2009, after a process that occupied a small team of staff full-time for most of the year. It is one of the larger inquiries we have carried out in recent years.
The report into the operation of the Service looked at the integrity and probity of Immigration New Zealand's systems, processes, and practices for deciding who will be issued with a visa or permit. We did not find any widespread integrity or probity issues. However, we did identify organisational issues that were of concern and a need for the Department to improve its systems and processes. In particular, we raised concerns about excessive variation in quality, approach, and processes between branches, an undue focus on quantity rather than quality in performance targets, a culture in which staff did not feel safe about raising concerns, a "silo" culture and poor management practices, and specific problems in the Pacific Division. The Department of Labour has indicated that it will work to address these concerns and implement our various recommendations.
The second report examined the public sector recruitment and related processes involving Mary Anne Thompson, the former Deputy Secretary (Workforce) in the Department of Labour. We concluded that the processes used to recruit her to various roles since 1989 appear to have been reasonably standard, and reflected practice at the time. It seems unlikely that her qualifications were checked until she applied for a chief executive role in 2004. Ministers were not aware of any uncertainty about her qualifications until just before the issue became public in May 2008. That was consistent with the norms governing Ministerial involvement in public service employment matters.
We published a report on our inquiry into the West Coast Development Trust in August 2008, after a complex inquiry that had begun as a result of a "whistleblower" disclosure to us in November 2007. Our inquiry found no significant issues relating to the various detailed concerns that were initially raised with us. Rather, we concluded that the main problem was that the Trust was dysfunctional at a governance level. The trustees were not able to work together effectively and were creating an atmosphere of suspicion and distrust. Our sole recommendation was that the trustees urgently needed to find a way to work together so that they could take effective collective responsibility for the governance of the Trust.
Other significant inquiries that we began during the year as a result of requests from Ministers or entities include those into the Plumbers, Gasfitters and Drainlayers Board, the payment of accommodation allowances to New Zealand Defence Force staff seconded to the United Nations, the Ministry of Education's administration of the national school bus tender round, Auckland City Council's management of footpath contracts, and Auckland Regional Council's management of the visit of the LA Galaxy football team.
We have noted in previous reports that most of our inquiry work is responsive and so the workflow can be uneven. The number of major inquiries that we have been asked to carry out in the course of 2008/09 has created substantial additional demands on the Office that could not have been anticipated. This workload was in addition to our usual flow of general requests in a wide range of areas.
Even among our general requests, we have noted that many of the issues we are being asked to consider are increasingly complex, significant, and long-running, particularly in relation to major activities or infrastructure projects being considered by local authorities. For example, during 2008/09 we spent a significant amount of time considering issues associated with the proposal to build a new sports stadium in Dunedin, after a large number of requests at several stages of the decision-making process. We also reviewed the way in which Christchurch City Council decided to purchase a number of inner-city properties at short notice from a single vendor. Our work on these topics illustrates an increasing trend for this Office to be asked to comment on whether local authorities are complying adequately with the decision-making requirements of the Local Government Act on wide-ranging issues. These requests can be factually and legally challenging, and are often made in the context of heated political debate about the particular issues.
Most of our inquiry requests continue to be in the local government sector. During 2008/09, we were also carrying out our three-yearly audits of LTCCPs, meaning that for some months we were unable to give our routine inquiry work the same level of priority as in previous years.
As a result of these various factors, our general timeliness has reduced this year and we have not met some of our performance targets.
Although staff vacancies during 2008/09 also affected our timeliness, we are carefully monitoring what appears to be a steadily rising workload in this area. If this trend continues, we will need to begin refusing inquiries or to reprioritise resources within the Performance audit and inquiries output class (the only output class in which the work we carry out is discretionary). Alternatively, we will need to seek additional funding from Parliament.
General requests for inquiries
We receive a large number of requests for inquiries each year. In 2008/09, we received 271 requests, which is more than usual. We also brought forward 27 from the previous year. By the end of the year, we had responded to 254 of these requests, and have carried 44 forward into the following year.
Not all requests result in an inquiry, because some requests raise issues that are outside our mandate, have not been raised yet with the relevant public entity, or are better dealt with by another organisation. For those requests that are appropriately made to us, we consider each one to determine the most appropriate way to proceed. Factors we consider include whether the Auditor-General is the appropriate authority to consider the issues, whether we have the resources to do so, and the seriousness of the issues raised. It is also common for us to receive a number of requests about the same issue if it is a matter of public controversy.
We classify inquiries into three categories – "routine", "sensitive", and "major" – depending on how serious the issues raised are. A routine inquiry involves straightforward issues, and can often be carried out either by a review of documents or through correspondence and discussion with the public entity. It will not usually result in a published report. We always advise the correspondent of our conclusions and the reasons for them, and in some instances we advise the public entity of the matter.
Sensitive and major inquiries involve more complex issues and may attract a broader level of public interest and attention. In these inquiries, we will often review the entity's files and may also formally interview people. We may report the results of these inquiries publicly, as well as advising the correspondent and the entity.
Measuring our performance for output: Inquiries
Actual performance against impact measure and standard for output: Inquiries
Entities take action in response to concerns identified in inquiry reports, as assessed by follow-up on a sample of sensitive and major inquiries undertaken in the previous year. We followed up on four of the 11 inquiries within these categories from the previous year that contained recommendations or suggestions for action. In all cases, we were satisfied with the action taken. We have followed up the one sensitive inquiry that was undertaken in 2006/07 (there were no major inquiries). The entity concerned has taken positive steps to address the comments we made. Not applicable – new measure for 2007/08.
Actual performance against output delivery measures and standards for output: Inquiries
80% of our findings on inquiries are reported to the relevant parties within:
three months for routine inquiries
84% (99 routine inquiries, 83 reported within three months). 91% (115 routine inquiries, 105 reported within three months). 95% (80 routine inquiries, 76 reported within three months).
six months for sensitive inquiries
73% (11 sensitive inquiries, 8 reported within six months). 82% (11 sensitive inquiries, 9 reported within six months). 0% (one sensitive inquiry, not reported within six months).
12 months for major inquiries.
0% (two major inquiries, both reported within 13 months). No major inquiries were carried out. No major inquiries were carried out.
For enquiries under the Local Authorities (Members' Interests) Act 1968, we complete 80% within 30 working days. 87% (53 received, 46 reported within 30 working days). 95% (103 received, 98 reported within 30 working days). 87% (47 received, 41 reported within 30 working days).
Responses to requests for inquiries, and our administering of the Local Authorities (Members' Interests) Act 1968 requests, are in accordance with relevant policies, procedures, and standards, as confirmed by internal quality assurance review.
(The nature, extent, and frequency of the quality assurance review are determined based on risk. The review is carried out during a three-year period.) No internal quality assurance review was undertaken in 2008/09. Review was completed and confirmed that requests are undertaken in accordance with relevant policies, procedures, and standards. Review was completed and confirmed that requests are undertaken in accordance with relevant policies, procedures, and standards.
Figure 26 provides a summary of the requests for inquiries dealt with during 2008/09.
Summary of requests for inquiries dealt with during 2008/09
from 2007/08
27 (not categorised) 271
44 (not categorised)
Sensitive inquiries
Total 27 271 254 44
Enquiries under the Local Authorities (Members' Interests) Act 1968
We also administer the Local Authorities (Members' Interests) Act 1968 (the Act), which governs the financial interests of members of local authorities. In 2008/09, we received 57 enquiries under the Act (see Figure 27).
Summary of Local Authorities (Members' Interests) Act enquiries dealt with during 2008/09
Number of enquiries 0 57 53 4
We remain concerned that the Act is out of date, operates unevenly, and creates additional risks and compliance costs for elected members and local authority staff. We are pleased that the Department of Internal Affairs began a review of the Act during 2008/09, and we have co-operated with the Department to ensure that it has access to our practical experience. We recognise that this is not a high priority for reform, but hope that it will proceed during 2009/10.
We carried out one significant investigation under the Act during the year, when it was suggested that the Mayor of the Thames Coromandel District Council had participated in a decision in which she had a pecuniary interest. We concluded that she did not have a pecuniary interest in the decision and so had not breached the Act, but that she had failed to identify and adequately manage the clear risk that others would perceive a conflict of interest. We are aware that this issue has caused a considerable amount of public concern in the district.
It provides a useful reminder for all elected members about the need to actively monitor their own financial affairs and business coming before councils to ensure that any actual or perceived conflicts of interest, whether financial or not, are identified early and actively managed. Even if there is no actual conflict of interest or legal risk, poor management of possible perceptions of conflict of interest can create significant public and political concern. This is not only time consuming to resolve; it can also damage public trust in the institutions of government. Local authority staff are usually able to provide advice, and will often contact us to discuss the most appropriate way of managing complex situations.
Crown 6,587 6,587 6,407 6,295
Other 17 0 14 20
Expenditure (6,159) (6,587) (6,223) (6,018)
Surplus/(Deficit) 445 0 198 297
1: “Material is defined in the New Zealand Institute of Chartered Accountants Auditing Standard AS-702: The Audit Report on an Attest Audit as: “a statement, fact or item is material if it is of such a nature or amount that its disclosure, or the method of treating it, given full consideration of the circumstances applying at the time the written assertion or set of assertions is completed, has the potential to influence users of the audit subject matter in making decisions or assessments.”
2: Matters arising from the 2006-16 Long-Term Council Community Plans, June 2007.
3: There is no sanction on a local authority for having such an opinion.
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