Part 2: Government departments – results of the 2003-04 audits
Introduction
2.1
This part reports on the results of the 2003-04 audits of 41 government
departments.1 Its purpose is to inform Parliament of the assurance given by
the audits in relation to:
- the quality of financial statements; and
- the financial and performance management of departments.
Audit opinions issued
2.2
The Public Finance Act 1989 (the Act) specifies departments’ responsibilities
for general purpose financial reporting. Sections 34A(3) and 35(3) of the Act2 required departments to prepare their financial statements for the 2003-04 financial
year in accordance with generally accepted accounting practice.3
2.3
Section 38(1) of the Act4 and section 15 of the Public Audit Act 2001 set out
the responsibility of the Auditor-General to issue an audit opinion on the financial statements of each department.
2.4
To form an opinion on the financial statements of departments, our audits
are conducted in accordance with the Auditor-General’s Auditing Standards,
which incorporate the Auditing Standards issued by the Institute of Chartered
Accountants of New Zealand. The audits are planned and performed to
obtain all the information and explanations considered necessary in order
to obtain reasonable assurance that the financial statements do not have
material mis-statements, whether caused by fraud or error.
2.5
The audit also involves performing procedures to test the information
presented in the financial statements. In forming our opinion, we assess the
results of those procedures, and evaluate the overall adequacy of the
presentation of information in the financial statements.
2.6
Of the 41 government departments audited, one received an audit report
containing a qualified audit opinion (see Figure 2.1 below).
Figure 2.1
Analysis of audit opinions 2000-04
| Year ended 30 June | 2000 | 2001 | 2002 | 2003 | 2004 |
|---|---|---|---|---|---|
| Unqualified opinions | 43 | 44 | 42 | 41 | 40 |
| Qualified opinions | - | - | 1 | 2 | 1 |
| Total audit opinions issued | 43 | 44 | 43 | 43 | 41 |
The total number of departments reduced to 41 in 2004. The Department for Courts merged with the Ministry of Justice, and the Ministry of Youth Affairs became part of the Ministry of Social Development.
Qualified audit opinion
2.7
The Ministry for the Environment received a qualified audit opinion.
A qualified audit opinion was issued in 20035, and the matter was corrected
in the financial statements for the year ended 30 June 2004. The qualification
for the latest year related only to comparative information (i.e. figures for the
previous year).
Financial and service performance management
2.8
Our auditors examine aspects of financial management and service performance
management. Where applicable, we identify specific areas of weakness, and
make recommendations to eliminate those weaknesses.
Reporting to Parliament
2.9
We report our assessment of certain aspects of management to the chief executive, and to stakeholders in each department (such as the responsible minister, and the Select Committee that conducts the financial review of the department).
2.10
Departments vary greatly in size and organisational structure, and sometimes undergo restructuring. For these reasons, we advise all readers to exercise caution when making comparisons between departments.
Financial management
2.11
We assess and report on the following aspects of financial management:
- Financial control systems – the individual systems that process financial data. For example, processing payments (expenditure and creditors). This covers controls surrounding the processing of these transactions to ensure the completeness and accuracy of data.
- Financial management information systems – the systems for recording, reporting and protecting financial information. This includes the information systems and information technology (IS/IT) control environment, and, for example, IS/IT strategic planning, data integrity, access controls, and the physical security of hardware and software.
- Financial management control environment – this covers management’s attitude, policies, and practices for overseeing and controlling financial performance. It includes financial management policies and procedures, self-review procedures (including internal audit), and budgeting processes.
Service performance management
2.12
We assess and report on the following aspects of service performance
management:
- Service performance information and information systems – the systems to record service performance (non-financial) data, and the internal controls (manual and computer) to ensure the completeness and accuracy of the data.
- Service performance management control environment – this covers the planning processes, the existence of quality assurance procedures, the adequacy of operational policies and procedures, and the extent to which self-review of non-financial performance is taking place.
The rating system
2.13
The rating system we use is:
| Assessment term | Further explanation |
|---|---|
| Excellent | Works very well. No scope for cost-beneficial improvement identified. |
| Good | Works well; few or minor improvements only needed to rate as excellent. We would have recommended improvements only where benefits exceeded costs. |
| Satisfactory | Works well enough, but improvements desirable. We would have recommended improvements (while having regard for costs and benefits) to be made during the coming year. |
| Just Adequate | Does work, but not at all well. We would have recommended improvements to be made as soon as possible. |
| Not Adequate | Does not work; needs complete review. We would have recommended major improvements to be made urgently. |
| Not Applicable | Not examined or assessed. Comments should explain why. |
The results
2.14
We assessed financial and service performance management in each of the
41 departments. A summary of the assessments (205 in total – 5 for each
department) is given in Figure 2.2 on the next page.
2.15
The 80 assessments of “Excellent” (39%), and the combined total of 177
assessments (86%) that were either “Excellent” or “Good”, shows a slight decrease on the previous year. There were fewer “Excellent” assessments, due mainly to departmental restructuring, and, in particular, the integration of
organisations with different control environments, requirements, and systems.
Figure 2.2
Summary of assessments of aspects of financial management and service
performance management in departments for 2003-04
| Aspect assessed | Excellent | Good | Satisfactory | Just adequate | Not adequate | Total | ||||
|---|---|---|---|---|---|---|---|---|---|---|
| No. | % | No. | % | No. | % | No. | %. | No. | No. | |
| FCS | 17 | 41 | 20 | 49 | 4 | 10 | 0 | 0 | 0 | 41 |
| FMIS | 17 | 41 | 19 | 46 | 5 | 12 | 0 | 0 | 0 | 41 |
| FMCE | 18 | 44 | 17 | 41 | 6 | 15 | 0 | 0 | 0 | 41 |
| SPIS | 12 | 29 | 21 | 51 | 8 | 20 | 0 | 0 | 0 | 41 |
| SPMCE | 16 | 39 | 20 | 49 | 5 | 12 | 0 | 0 | 0 | 41 |
| Totals 2004 | 80 | 39 | 97 | 47 | 28 | 14 | 0 | 0 | 0 | 205 |
| 2003* | 83 | 41 | 99 | 48 | 23 | 11 | 0 | 0 | 0 | 205 |
Key:
FCS - Financial Control Systems
FMIS - Financial Management Information Systems
FMCE - Financial Management Control Environment
SPIS - Service Performance Information Systems
SPMCE - Service Performance Management Control Environment
* The 2003 totals are included to enable comparisons to be made (results for the Department of Courts and the Ministry of Youth Affairs have been removed from the 2003 figures).
2.16
No assessments of “Just Adequate” or “Not Adequate” were issued in the last two years.
2.17
We compared our assessments for 2002-03 and 2003-04 for each of the
41 departments. The results are summarised in Figure 2.3 below.
Figure 2.3
Assessment ratings for 2004, compared to 2003
| Aspects assessed* | Higher rating | Same rating | Lower rating | Total |
|---|---|---|---|---|
| FCS | 3 | 36 | 2 | 41 |
| FMIS | 1 | 38 | 2 | 41 |
| FMCE | 2 | 37 | 2 | 41 |
| SPIS | 1 | 38 | 2 | 41 |
| SPMCE | 0 | 37 | 4 | 41 |
| Totals | 7 | 186 | 12 | 205 |
| % | 3.4 | 90.7 | 5.9 | 100.0 |
* See Figure 2.2 for key to abbreviations.
2.18
Figure 2.3 shows:
- a very high proportion (90.7%) of the assessment ratings were maintained at the level of the previous year;
- 7 of the assessment ratings (3.4%) were higher in 2004 than in 2003; and
- 12 of the assessment ratings (5.9%) were a lower rating than in 2003.
2.19
The 7 assessment ratings that were higher in the 2003-04 year confirm that
some departments continue to make improvements. The 12 rating assessments
that were lower than the previous year were due to:
- departmental restructuring, and in particular the integration of organisations with different control environments, requirements, and systems; and
- other significant issues that had an adverse effect on the management control environment.
2.20
The possibility of all departments attaining a rating assessment of “Excellent” is, for a variety of reasons, unlikely. The reasons for this include:
- periodic restructuring;
- the complexity of departmental operations; and
- the sheer size of some departments’ operations.
2.21
Our auditors will, nevertheless, continue to assist and encourage departments
to make improvements.
1: The 41 departments are listed on page 88 of the Financial Statements.
2: These sections have since been repealed by the Public Finance Amendment Act 2004, and replaced by new sections 41(1)(a) and 45B(1).
3: “Generally accepted accounting practice” is defined in section 2(1) of the Public Finance Act 1989.
4: This section has since been repealed by the Public Finance Amendment Act 2004, and replaced by new section 45D(2).
5: See our detailed explanation in Central Government: Results of the 2002-03 Audits, parliamentary paper B.29[04a], pages 26-27.
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