The Year in Review
I have much pleasure in presenting our report on the Audit Office’s performance for the 2000-01 financial year.
I am pleased to be able to report positively on all of the issues which I identified last year as high on my list of things to achieve. In particular the Office:
- maintained high levels of productivity – publishing 12 substantive reports, and completing 4,007 annual audits;
- assisted with the passage into law of the Public Audit Act 2001, and began to implement the consequent changes;
- maintained a suitable balance between being responsive to increasing demand for unplanned inquiries and successfully completing our planned programme of special audits and studies;
- successfully commissioned an external peer review, whose findings were very positive, and whose recommendations we will be responding to in the 2001-02 year; and
- improved our capability – particularly in the area of knowledge management, but also through identifying more accurately our future needs and beginning to take steps towards meeting those needs.
Public Reports
| Highlights | |||
|---|---|---|---|
| |
2001 | 2000 | 1999 |
| Number of public reports | 12 | 13 | 10 |
| Cost ($000) | 2,339 | 2,342 | 2,558 |
Once again we had a busy and successful year. We produced 12 substantive public reports – covering the results of annual audits, planned special audits and unplanned special investigations. One report achieved a particularly high public profile – Members of Parliament: Accommodation Allowances for Living in Wellington – Interim Report (March 2001).
Responding to Local Concerns
We produced three public reports during 2001, and numerous reports to individual Councils, on significant local issues raised during the year. Most of these identified issues which the Councils needed to address. The three public reports were:
- Auckland City Council’s Management of its Responsibilities in the Hauraki Gulf (October 2000);
- Waitakere City Council: Payments and Associated Issues Relating to Certain Staff Redundancies (October 2000); and
- Thames Coromandel District Council: Actions Relating to a Sewerage Scheme for Cooks Beach and Ferry Landing (June 2001).
Governance Issues
We continued to encourage the Executive, select committees and various other groups to debate and implement our previously published reports on governance issues such as Governance Issues in Crown Entities (November 1996) and The Accountability of Executive Government to Parliament (June 1999).
It is disappointing that the Government’s initiative to produce new legislation for Crown entities has been given lower priority this year. However, it is pleasing that the State Services Commission and the Treasury have been making good progress on addressing the “capability” and “outcome reporting” issues we raised in The Accountability of Executive Government to Parliament.
In respect of the Local Government sector, we produced a major report entitled Local Authority Governance of Subsidiary Entities (March 2001). This report canvasses a range of both general and specific governance issues in local government – such as governance of trusts, commercial trading enterprises, and major service entities such as Infrastructure Auckland. The report makes a number of recommendations on roles and responsibilities, structures, and monitoring and accountability arrangements.
Supporting Better Practice
We produced three reports aimed at providing positive guidance to particular sectors of our audit portfolio:
- Auditing a Long-term Financial Strategy – Opotiki District Council Pilot Project (September 2000);
- Reviewing a Long-term Financial Strategy and Funding Policy – Experiences of the “Early Nine” [Local Authorities] (October 2000); and
- Good Practice for Involvement in a Major Project – Lessons from the Opuha Dam Project (March 2001).
Two further “good practice” reports were circulated widely in draft during the year, and published early in 2001-02:
- Reporting Public Sector Performance (July 2001); and
- Procurement: A Statement of Good Practice (draft published on our web site, July 2001).
Although most of these reports used “live” case studies, our primary aim was to provide “good practice” guidance for entities embarking on similar projects in the future.
Emphasising Environmental Issues
We continued to give emphasis to environmental issues. We published a report entitled Meeting International Environmental Obligations in May 2001, which examined New Zealand’s approach to four significant international environmental agreements it is party to. These agreements related to the ozone layer, wetlands, trade in endangered species, and climate change.
Reporting Audit Results and Sectoral Issues
Each year we produce compendium reports, primarily summarising the results of financial statement audits in the Central Government and Local Government sectors. In 2000- 01, these were published in December 2000 and June 2001 respectively, and covered a wide range of issues.
Highlights of the reports included questions about the Supplementary Estimates process which had taken place in 1999-2000, and a follow-up report on the Papakura District Council’s management and monitoring of its water and wastewater franchise.
Financial Statement Audits
| Highlights | |||
|---|---|---|---|
| |
2001 | 2000 | 1999 |
| Audits completed | 4,007 | 4,272 | 3,960 |
| Audit costs ($m) | 31.362 | 30.407 | 29.014 |
| Timeliness of audit reports (excluding schools) | 68% | 61% | 62% |
| Timeliness of management reports | 95% | 88% | 86% |
| Audits outstanding at year end | 395 | 646 | 1,038 |
Our public reports provide the visible side of our activity. However, about 85% of what we do relates to financial audits of the more than 3,700 public sector organisations that we audit. I am again pleased to report that the arrears situation for these audits has significantly improved. Audits outstanding have reduced from 646 to 395, an improvement of 643 on two years ago. This is the result of strenuous efforts over the last two years (on the part of auditors in the field and staff in the Office of the Auditor-General) to encourage entities to produce their statements in a more timely manner, and then to complete the audits.
The timeliness of work has improved dramatically in the last year. I noted in last year’s annual report my intention to take steps to improve performance in the timely issue of audit management letters, and am pleased to report that we have been successful here. However, we still have work to do on timeliness of audit reports.
Achieving Our Goals
| Highlights |
|---|
| 4 audit tender rounds successfully completed. |
| Peer review of the Audit Office completed in March 2001. |
| Public Audit Act 2001 passed in April 2001. |
Part 2 of this report details our performance in achieving the three goals we set ourselves for 2000-01. Items that deserve special mention here are:
Continuing to Deliver Excellent Audit Services
As already mentioned, we were particularly successful in making major improvements in the problem areas of “audit arrears” and the timely issue of audit reports and management letters.
We aim to carry out quality assurance reviews of each Approved Auditor’s performance once during their threeyear contract period. We remain on target to achieve this coverage. Our reviews found that, generally, work was of a good quality. For the few exceptions, we took appropriate follow-up action.
We continued to place emphasis on communicating effectively with those interested in our work. We gave numerous briefings to select committees and other audiences on our reports, and also began considering how we can better evaluate the impact of the reports.
Adjusting to Reflect our Changing Environment
Obtaining and processing intelligence about developments in the public sector is a core part of our business. This year, we put special effort into:
- developing our relationships with central agencies;
- understanding the impact of “E-Government”, both generally on the public sector and specifically on audit requirements; and
- beginning a project to enable auditors to report to us electronically.
Leading by Example
We continue to try to demonstrate best practice as a public entity in the areas of performance, financial management and accountability. Highlights for the year were:
- We continued with our policy of exposing a significant part of our audit portfolio to competitive tendering. Four tender rounds were held this year – resulting in 4 tenders being won by Audit New Zealand, 10 by private sector auditing firms, and 106 entities electing to renegotiate with their existing audit service provider.
- We take seriously the proposition that, to lead by example, we must practice what we preach. This year, we undertook a systematic review of our own processes in relation to relevant reports we have issued over the last decade. We identified some minor areas for reconsideration of our processes in the areas of telephone use, fraud policy, and asset disposal policies.
- We continued to develop processes for measuring our own outcomes, and we report on some of these measures in this report.
- The Public Audit Act 2001 was enacted on 6 April 2001 and came into force on 1 July 2001. This marked the completion of a process of debate and reform which had lasted since the late 1980s. Since the Bill was introduced, a lot of work has been done to prepare for its implementation – as it extends both the portfolio of entities we audit and our mandate in those entities. In the current financial year we will publish auditing standards under the Act, finalise arrangements for the audits of entities newly added to our portfolio, and undertake some work under our extended mandate.
- In February-March 2001, member officers of the Australasian Council of Auditors-General undertook a peer review of our activities. I am very pleased that the overall findings present the Office in an excellent light and we are committed to responding positively to the review findings and recommendations.
Management Performance
| Highlights |
|---|
| We achieved a surplus of $351,000 on total spending of $35,543,000. |
| Output Class D3 was overspent by $277,000. |
| The OAG developed capability action plans. |
| Audit New Zealand implemented computer-assisted audit support tools. |
Part Three 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 2000-01 as set out in our Forecast Report.
Our results continue to demonstrate an encouraging degree of success in achieving our goal of being a leading example of a public sector organisation in terms of performance, financial management and accountability.
Financial Performance
We achieved a surplus of $351,000, compared with a forecast surplus of $237,000.
We incurred unappropriated expenditure of $277,000 in Output Class D3 – Non-contested Audit Services. This was because costs associated with the audits of public reserves, cemeteries, and the disestablishment of health entities were under-budgeted, and indirect costs were higher than budget because of lower-than-forecast activity in Output Class D4, which lead to Output Class D3 having to carry a higher burden of indirect or overhead costs. The unappropriated expenditure was funded by revenue from third parties, and so did not result in any cost to the Crown.
In recent years we have successfully managed within static appropriations for the discretionary part of our business (Output Class 1). However, this has placed increasing strain on the Office, and we have not always been able to achieve all we planned or have been asked to do.
We approached the Officers of Parliament Committee with a new business plan late last year. The plan successfully sought additional funding to help us satisfy the increasing demands from Parliament and external enquirers, and the impact of increased responsibilities under the Public Audit Act 2001.
Human Resources
In the past year we continued our development of human resource and professional development policies and practices.
Major areas of emphasis were:
- for the OAG, undertaking a review of capability requirements and agreeing to action plans for building capacity to meet future needs;
- for Audit New Zealand, commencing work on the second
phase of its people strategy by beginning Project Enable.
This project focuses on four areas:
- refocusing the audit approach;
- reshaping the business;
- improving business processes; and
- leading change in culture, competencies and behaviour.
Staff turnover in both the OAG and Audit New Zealand increased this year to 17.8% and 25.9% respectively. The increases reflect an increasingly competitive market for skilled and experienced staff and are of particular concern to Audit New Zealand. Audit New Zealand is developing strategies to address and cope with this level of turnover.
While overall staff turnover has been high, I am pleased to report that there was no turnover at senior levels in either the OAG or Audit New Zealand during the year.
OAG Management Objectives
The OAG has reported against its six key management and development objectives set out in the Forecast Report.
Highlights not covered above include:
- beginning to work with the new sub-committee of the Finance and Expenditure Committee on consideration of our reports; and
- further development of our knowledge management systems, including beginning work on exchanging information with our audit service providers electronically.
Audit New Zealand Management Objectives
Audit New Zealand has also reported against its five key management and development objectives as set out in the Forecast Report. Highlights not covered above include:
- achievement of its surplus target; and
- successful implementation of computer-based audit support tools (Project Assist) on time and within budget, early in 2001. This was funded by a capital injection of $1.2 million, and a reduction in the surplus target of $0.8 million.
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. Highlights include:
- Continuing participation by one of my Assistant Auditors-General, Kevin Simpkins, as New Zealand’s representative on the Public Sector Committee of the International Federation of Accountants.
- Continuing participation in international working groups on environmental auditing and the development of accounting standards.
- Continuing duties as Secretary of the South Pacific Association of Supreme Audit Institutions (SPASAI).
- Continuing participation of senior staff in the technical committees of the Institute of Chartered Accountants of New Zealand.
In addition, I attended the second meeting of the Auditors-General Global Working Group in Washington in February 2001. This working group was set up to promote informal dialogue among the Auditors-General of a small number of countries facing similar issues and challenges. New Zealand will host the next meeting in February 2002.
Looking Forward to 2001-02
The following issues – which are set out in detail in the Office’s Forecast Report 2001-2002 – are high on my list of things to achieve before my term of office expires in late- April 2002:
- implementing the portfolio and mandate changes that came into force when our new legislation was enacted;
- responding to the recommendations of the external peer review of the Office conducted in February-March 2001; and
- maintaining the high productivity of the Office while ensuring that our capability is maintained and enhanced, and in particular ensuring that the additional funding received by the Office is effectively used.
Appreciation
Finally, I thank my Deputy, Assistant Auditors-General, Directors of Audit New Zealand and the OAG and all my staff for their hard work and dedication in contributing to what I believe has been another particularly successful year for the Office.
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