Annual report for the year ended 30 June 1999

I have much pleasure in presenting our report on the performance of the Audit Office for the 1998-99 financial year.

This has been another successful year for the Office. We have increased significantly the number of our reports to Parliament at a time when Parliamentary select committees are becoming more active in their role of scrutinising the Executive; and we have achieved almost all the goals and objectives we set ourselves in our Forecast Report.

A number of our reports have had a high public profile – for example, reports on the HMNZS Charles Upham and Management of the Britomart Project, and reports on Crown entities such as the Fire Service Commission and the New Zealand Tourism Board. In the Crown entity sector this high profile has been particularly useful in providing living examples of the sorts of issues we raised in our November 1996 report Governance Issues in Crown Entities.

However, our reports also cover less controversial but equally important subjects such as a study on Public Consultation and Decision-making in Local Government, which was undertaken to help local government carry out this difficult task more effectively.

Another report that I consider particularly important – entitled The Accountability of Executive Government to Parliament – was tabled in June of this year. The purpose of this report is twofold:

  • to promote Parliament’s awareness of some issues in the way it currently scrutinises and controls the Executive and holds it to account; and
  • to point to opportunities for improvement and to stimulate debate about them.

I am hopeful that this report will act as a catalyst for a debate that will enable Parliament to develop more effective systems for overseeing the Executive, and for the Executive itself to achieve better results.

Lastly, on the more routine but equally important subject of our annual financial audits – which represent approximately 85% of our total activity – I am encouraged to report that we have had some success in reducing arrears and improving the timeliness of completing audit reports and audit management letters. Much still remains to be done, however, and I expect to be able to report even greater improvements next year.

Achieving Our Goals

Part 2 of the report details our performance in achieving the six goals we set ourselves for 1998-99.

I have summarised these goals under two headings:

  • Providing effective products and services to Parliament and other constituencies.
  • Maintaining continuous improvement in our audit and contract management processes.

Providing Effective Products and Services to Parliament and Other Constituencies

Annual Audits

Annual audits of financial reports represent about 85% of our total workload. It was pleasing that, despite the number of entities we audit increasing only slightly during the year, we completed 204 more audits than the previous year. I am also pleased to report that we have started to get on top of the “audit arrears” problem that I have mentioned in previous years and we have taken action to make further progress in 1999-2000.

Overall, we have slightly improved our performance over last year in the timely issue of audit reports and management reports – however, we are still well below our targets in some sectors. We are in the process of putting plans in place to improve our performance in the forthcoming year and we expect to report a significantly better picture in next year’s annual report.

Relationship with Parliament

We have continued to put considerable effort into improving the quality of the advice and support we provide to Parliamentary select committees. Committees have also continued their requests for us to provide advice over and above the review of estimates and financial reviews. The Charles Upham inquiry was an example of this, as were reviews we conducted of the cost-benefit analysis supporting the MAF/MOF merger, and of Capital Coast Health’s acquisition of a new computer system.

In addition, we have continued the increase in reports to Ministers on the results of all audits within their portfolio. This means that Ministers are better informed about key matters arising out of audits.

Relationship with Local Government

We have again utilised the wide-ranging skills of my Advisory Group to check that our strategic planning has identified the major issues facing local government and that our planned discretionary audit work is both relevant and credible.

We have also continued our practice of using independent experts to act on the project steering committees for certain specialised projects such as Public Consultation and Decision-making in Local Government.

Reports to Parliament

1998-99 was again a busy year for the Office. We presented to the House three reports that included a wide range of topics relating to our 1997-98 audits – Third Report for 1998 (November 1998); First Report for 1999 (March 1999); and Second Report for 1999 (June 1999).

In addition, we presented reports on the results of special audit work and major studies, including:

Second Report for 1998 (July 1998) (also mentioned in our previous annual report) –

  • Financial performance of Crown Health Enterprises, Crown Research Institutes and Maori Trust Boards.
  • The Information Needs of the Children, Young Persons and Their Families Service.

Third Report for 1998 (December 1998) –

  • Department of Internal Affairs: Control of Gaming Machines (follow-up to our 1992 report).
  • Delivering Effective Outputs for Maori.
  • Statements of Corporate Intent: Are They Working?
  • Governance Issues in Crown Entities (follow-up to our 1996 report).

First Report for 1999 (March 1999) –

  • Maintaining Financial and Service Performance During Organisational Change.
  • Public Sector Readiness for the Year 2000.
  • How are State-owned Enterprises Managing Foreign Exchange Risk?

Second Report for 1999 (June 1999) –

  • A number of issues relating to Regional and Territorial Local Authorities, including: Contracting Procedures; Rating Apportionments for Single Properties; Funding of Depreciation; and Managing the Risks to Assets Providing Essential Community Services.

Third Report for 1999 (June 1999) –

  • The Accountability of Executive Government to Parliament.

Other special reports we presented to the House during the year were:

  • New Zealand Fire Service Commission: Adequacy of the Arrangements to Ensure that the Fire Service Levy is Properly and Fully Paid (July 1998) (reported in our previous annual report).
  • Public Consultation and Decision-making in Local Government (December 1998).
  • Auckland City Council: Management of the Britomart Project (January 1999).
  • Inquiry into Certain Events Concerning the New Zealand Tourism Board (April 1999).

A further special report was made to a select committee and tabled in the House by the committee:

  • HMNZS Charles Upham: Report on Concerns Raised by the Foreign Affairs, Defence and Trade Committee (September 1998)

Also during 1998-99 we published:

  • A revised Guide to the Local Authorities (Members’ Interests) Act 1968 (November 1998).

Maintaining Continuous Improvement in our Audit and Contract Management Processes

We strive to achieve continuous improvement in the audit processes and relationship mechanisms with Approved Auditors in both Audit New Zealand and private sector auditing firms. Achievements during 1998-99 were:

  • Continuing with our policy of exposing a significant part of our audit portfolio to competitive tendering – three tender rounds were held, resulting in 5 tenders being won by Audit New Zealand, 7 by private sector firms, and 27 entities electing to re-negotiate with their existing audit service provider (in all cases this was Audit New Zealand).
  • Making extensive comments on the Exposure Draft of the new codified Auditing Standards, issued by the Institute of Chartered Accountants of New Zealand, and issuing (in July 1999) a revised version of our own Standards.
  • Developing a number of new general policies for inclusion in the Manual for Audit Service Providers, including:
    • Accounting for ACC Premiums.
    • Audit Approach to the Year 2000 Issue.
  • Continuing to provide support to auditors on a range of accounting and auditing issues; and to conduct seminars in convenient locations throughout New Zealand.
  • Continuing to keep in touch with auditors in a less formal way through our newsletter the Watchdog, which is now also published on the Web.

Management Performance

Part 3 of the report highlights our performance under the headings of:

  • financial performance; and
  • human resources.

It then discusses how the two business units of the Office – the Office of the Auditor-General (OAG) and Audit New Zealand – have met their respective key objectives for 1998-99 as set out in our Forecast Report.

I believe that our results show that we continue to close on our goal of being a leading example of a public sector organisation in terms of performance, financial management and accountability.

Financial Performance

Operating Surplus for 1998-99

We achieved a slightly lower surplus ($593,000) than forecast ($722,000) because of unexpected costs associated with enquiries and the settlement of a long-standing personal grievance.

Financial Position

The Audit Office remains in a good financial position despite a reduction in taxpayers’ funds of $466,000 due to a Treasury requirement on accounting for a technical change in the measurement of employee entitlements. The level of physical assets was maintained and billing of work in progress and collection of receivables was undertaken in a timely manner.

Human Resources

We are continuing to strive for ways to improve our human resources policies and practices. In the past year we have focused on consolidating new policies introduced in previous years, and we have introduced new processes to ensure we comply with legislative changes.

Professional development of our staff is a very important part of our operations. Highlights of our professional development activities this year included:

  • Organising an in-house course on Media Skills Training for selected senior staff.
  • Sending three senior staff to management development courses.

In addition, I believe that the secondment of two of our staff as Acting Chief Executives (of the Ministries of Cultural Affairs and Youth Affairs) reflects very well on the training and variety of experience provided by the Office.

OAG Management Objectives

We have reported against the seven key management and development objectives set out in the Office’s 1998-99 Forecast Report. Highlights include:

  • A complete revision of our overall strategic processes.
  • Development of a new monitoring system at Management Board level.
  • Completion of much of the work to implement a new “web enabled” Technical Advice Register and develop an intranet.
  • Re-negotiation of our accommodation lease on considerably improved terms.

Audit New Zealand Management Objectives

Audit New Zealand has also reported against its seven key management and development objectives as set out in the Office’s 1998-99 Forecast Report. Highlights include:

  • Achievement of its Business Plan.
  • Implementation of a new organisation structure targeted to key areas of strategic focus.
  • Establishment of a Specialist Services Group to develop and deliver wider assurance services to its clients.

Input to Public Sector Accounting and Auditing Development

The Office continues to play a leading role in the development of public sector accounting and auditing standards – both in New Zealand and internationally.

This year has again been a busy one in meeting this objective. Highlights include:

  • Continuing participation by one of my Assistant Auditors-General as one of New Zealand’s two technical advisers to the Public Sector Committee of the International Federation of Accountants.
  • Continuing participation by my Deputy and one of my Assistant Auditors-General in international working groups on the audit of privatisations and environmental auditing.
  • Continuing duties as Secretary of the South Pacific Organisation of Supreme Audit Institutions. This year one of Audit New Zealand’s Directors organised a major training course for Audit Offices in the South Pacific Region, which was funded by the Asian Development Bank.
  • Continuing participation of senior staff in the technical committees of the Institute of Chartered Accountants of New Zealand.

New Audit Legislation

In last year’s annual report I noted the Government’s favourable response to the report of the Finance and Expenditure Committee on my legislative mandate.

Drafting instructions for the new legislation – to be known as the Public Audit Bill – were completed in early 1999. I am confident that the Bill will be ready for introduction later in 1999.


Finally, I would like to place on record my thanks to my Deputy, Assistant Auditors-General, Directors of Audit New Zealand and all staff who have contributed to another very successful year for the Office. Our achievements have been the result of the dedication, belief in the role of the Office and hard work of all concerned.

As I write this report I have just learnt that my Deputy, Wayne Cameron, has been appointed Auditor-General of the State of Victoria, taking up his new role in mid-September.

Wayne started with the Office in 1966 in Dunedin and in his earlier career alternated between Wellington and Dunedin, interspersed by four years in London (1977-81). He has been Deputy Auditor-General since 1985 – encompassing three Auditors-General – and during that time has acted as Auditor- General for extensive periods. He is best known externally for his strategic oversight of the audits of State-owned Enterprises, Producer Boards and Pacific Islands, and his long-standing involvement with the accounting and auditing standards-setting process of the Institute of Chartered Accountants of New Zealand.

Wayne has been an outstanding figure in the Audit Office’s development over the last 20 years and his leadership, good judgement and institutional knowledge will be sorely missed by both staff and clients. New Zealand’s loss is Victoria’s gain, however, and on a personal level I am thrilled that Wayne has achieved such a prestigious and undoubtedly challenging position.

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