Part 1: Statement of intent

Annual plan 2005-06.

Strategic context

Role of the Auditor-General

The office of Controller and Auditor-General (the Auditor-General) is a statutory office that exists as a constitutional safeguard to maintain the financial integrity of New Zealand’s parliamentary system of government.

As an Officer of Parliament, the Auditor-General provides independent assurance to both Parliament and the public that public entities are operating, and accounting for their performance, in accordance with Parliament’s intentions. This includes effective and efficient use of the resources and powers conferred on them.

The Auditor-General also provides independent assurance about local government, as local authorities are accountable to the public for the activities they fund through locally raised revenue.

The Auditor-General’s key concerns are a reflection of his mandate under the Public Audit Act 2001. His key concerns are:

  • Performance: Have public entities undertaken activities in accordance with Parliament’s intentions, and in an effective and efficient manner?
  • Authority: Have activities, resourcing, and accountability requirements been undertaken within the authority granted by Parliament?
  • Waste: Have resources been obtained and applied in an economical manner? – that is, taxpayers’ dollars are not being wasted.
  • Probity and financial prudence: Are entities meeting parliamentary and public expectations of an appropriate standard of behaviour in the public sector?
  • Accountability: Have entities given full and accurate accounts of their activities, and of their compliance with Parliament’s intentions, through the annual reporting cycle? Are governance and management arrangements suitable to address the concerns identified above?

Our operating model

The Auditor-General employs staff in 2 business units – the Office of the Auditor-General (OAG) and Audit New Zealand (Audit NZ) – and also engages private sector Audit Service Providers (ASPs) to carry out his statutory functions in relation to public entities.

The OAG undertakes strategic audit planning, and policy development and standard setting. It also appoints auditors and oversees their performance, and carries out performance audits, Parliamentary reporting and advice, and inquiries and other special studies.

Audit NZ carries out audits allocated under the audit resourcing model, and provides public entities with other assurance services that are within both the Auditor-General’s mandate and the Auditor-General’s Auditing Standard relating to independence of auditors.

ASPs are private sector accounting firms that carry out annual audits allocated to them under the audit resourcing model. ASPs also offer wider assurance services to public entities within the limits of the Auditor-General’s Auditing Standard relating to independence of auditors.

The audit resourcing model

The Auditor-General uses an “audit resourcing model” for selecting auditors to carry out annual audits of public entities.

For the majority of public entities, the Auditor-General now allocates annual audits to auditors. He chooses from a pool of ASPs – which includes Audit NZ, the 4 major chartered accountancy firms and a range of smaller audit firms. (In total about 70 private accounting firms act as ASPs.) Some audits, of public entities that have a strong commercial focus, are subject to a contestable regime.

The audit resourcing model allows the Auditor-General choice and flexibility in the allocation of his work to the auditors who carry out annual audits, and allows collaboration within his Office and between the organisations that support the Auditor-General.

Our strategic direction

This Statement of Intent builds from our 5-year Strategic Plan, which was made available in early 2004. In that Strategic Plan, we set out our internal operating vision and strategy, as follows:

We want “to set the benchmark for design and delivery of independent assurance services”. This means that we want to be acknowledged as the innovators in designing public sector, independent assurance services, and as high quality deliverers of such services. We refer to this internally as being “product leaders”.

In our Strategic Plan, we set out our 3 key strategies for the next 3-5 years. These are:

  • Shaping our services to anticipate and respond to Parliament and other stakeholders’ needs and our changing environment. This means having the “best” independent, public-sector assurance products and services, which constantly evolve to meet the needs of Parliament and our other stakeholders and to respond to the ongoing and significant changes in our environment.
  • Building our capability to create and deliver our services. Investing in the future capability of the Office through targeted attraction, retention, and development strategies. This means having systems and processes that support the work of the Office, and having access to the “best people” from OAG, Audit NZ, and our other ASP colleagues.
  • Fostering relationships and ways of working that support our strategy. This means encouraging and valuing behaviours that support collaborative working and innovation.

To progress these 3 key strategies during 2005-06, we will focus our efforts on developing our people and our products/services. Our “management actions” are described on pages 69-70.

Operating environment

Our Strategic Plan identified a range of issues affecting the environment in which we work. These issues fell broadly into 3 areas, relating to the significant and ongoing changes occurring in:

  • the accounting and auditing profession;
  • the legislative and operating environments of public entities; and
  • information and reporting requirements and methods.

Accounting and auditing profession

The accounting and auditing profession continues to face pressure after major corporate collapses in the last 3 years. The firms have responded with a “back-to-basics” approach, including:

  • internationalisation of accounting – professional and ethical standards;
  • an increased emphasis on risk and quality;
  • reappraisal of audit methodologies;
  • rationalisation of service lines by firms;
  • increased ratio of senior staff to junior staff;
  • increased emphasis on core auditing and accounting skills; and
  • a resultant increase in audit fees in both the public and private sectors.

The introduction of New Zealand equivalents of International Financial Reporting Standards (NZ IFRS) will pose a significant challenge for us. All entities, including those within the Auditor-General’s mandate, will need to use NZ IFRS for reporting periods starting on or after 1 January 2007. However, there are implications for re-stating comparatives and their opening balance sheets. In addition, some sectors – including local government – are likely to elect to comply earlier than this date.

We are working in partnership with PricewaterhouseCoopers, using that firm’s global connections and expertise in IFRS, to ensure that our auditors are fully trained and to mitigate possible risks to public entities associated with the change to NZ IFRS.

The Institute of Chartered Accountants of New Zealand is currently undertaking consultation about the adoption of International Standards of Auditing (ISA).

ISA will have a significant effect on our work during 2005-06 and beyond.

Legislative and operating environments of public entities

Major legislative change will continue to affect public entities within the Auditor-General’s mandate, including this Office, during the next 1-3 years. In particular:

  • The audit of Long-Term Council Community Plans (LTCCPs) under the Local Government Act 2002, which will take place from 2006. Local authorities are also still coming to grips with the new decision-making principles in the Act, and have varying capability to respond to the new requirements. For us, this means there is:
    • a need to ensure that the auditing methodology for LTCCPs (which is in its final stages of development) is robust and appropriate for the needs of local authorities and their stakeholders; and
    • an ongoing expectation that we will scrutinise local authorities’ decision-making processes through our inquiry function.
  • Enactment of the Public Finance Amendment Act 2003 (PFAA), which will implement changes to government departments’ non-financial reporting from the 2005-06 year – changes which have been progressively introduced as a result of the Managing for Outcomes initiative. In addition, changes to the appropriations system will apply to the 2005 Budget. This will impose a major additional burden on government departments and on this Office. Changes to the Controller function will also take effect from 1 July 2005. For us, this means there is:
    • a need to prepare our auditors for the changes, and to adapt our auditing approach accordingly; and
    • an expectation that we will assist government departments to come to grips with the changes, by providing assurance over their reporting in non-financial areas (including outcomes, impacts, capability, and risk).
  • Enactment of the Crown Entities Act 2004 (CEA) which brings about major changes in the governance, accountability, and financial management of Crown Entities. Changes in respect of non-financial reporting (similar to those in respect of government departments) will take effect from 2006-07.

Recent probity failures in the public sector – for example, high profile frauds, a range of issues with non-government organisations (NGOs) about the use of public funds, and conflicts of interest – have resulted in an increased level of scrutiny of public sector activities by Members of Parliament (MPs), the media, and the public. Overall, this has increased expectations about what the Auditor-General can do through annual audits, performance audits, and inquiries.

New and emerging ways of doing business are also affecting the work of public entities and this Office – for example, the effect of e-government and e-business activities.

Information and reporting requirements and methods

As well as legislative change, there has been an increase in sustainable development reporting and, to lesser extent, in the use of Extensive Business Reporting Language (XBRL).

Reporting is becoming more complex (involving consideration of intergenerational equity, spending choice, capability, and value for money). Public entities have limited skills and experience in more complex reporting, which is reflected in the current low levels of evaluative activity in the public sector.

Changes in reporting requirements and methods pose challenges for us, particularly as expectations increase as to the nature and extent of assurance that the Auditor-General can provide.

Responding to issues in our environment

In response to the issues existing in our environment, our Strategic Plan identified the following key area of focus–

Enhancement of our Strategic Audit Planning process and deployment of our full range of assurance interventions around issues/risks.

Specifically, this means:

  • seeking greater involvement, communication, and knowledge-sharing between people working in and for this Office in our Strategic Audit Planning process; and
  • applying the full range of assurance responses to issues and risks that we identify as requiring attention.

In addition, the Strategic Plan identified the need for us to:

  • Undertake more work in the area of non-financial reporting – including assurance over:
    • local authorities’ LTCCPs;
    • reporting by government departments and Crown Entities under the PFAA and CEA, including outcomes, capability, risk, ownership, and stewardship reporting; and
    • sustainable development reporting.
  • Enhance the level of audit work in key areas such as:
    • waste;
    • probity; and
    • governance and accountability.
  • Increase the number of performance audits undertaken each year from 10 to 21 by the 2005-06 year, and improve the timeliness of such audits.
  • Improve the timeliness of inquiries.

Our outcomes

Outcomes framework

Our outcomes framework is modelled on the “Managing for Outcomes” approach.

Progress in the development of our outcomes framework

During the past 2 years, we have continued to develop our outcomes framework, in particular, to better define the impact of our work, and explore ways in which we can more effectively evaluate our impact. This progress will be ongoing as we continue to understand and apply the “managing for outcomes” approach.

When the Officers of Parliament Committee (OPC) considered our Strategic Plan and the associated business case for additional funding in March 2004, it requested us to introduce 2 additional impact evaluation processes – one for performance audits, and one for the implementation of our Strategic Plan.

Our impact evaluation process for performance audits was developed in consultation with the Treasury, and agreed by the OPC in August 2004. A pilot evaluation report on 2 selected performance audits was provided to the OPC in March 2005. The process will be fully implemented during 2005-06, with a full report to the OPC in February 2006.

We expect to develop the evaluation framework to assess the impact of the implementation of our Strategic Plan during 2005-06.

Outcomes statement

While we are independent of the Government, and therefore do not contribute directly to the “Government’s goals”, we play a key role in supporting the achievement of like outcomes. We have one end outcome and 2 intermediate outcomes.

End outcome

The “end outcome” is the desired situation sought as the result of our (and others’) work. While aspirational in nature, it is nevertheless achievable. Others will also play a part in its achievement.

Our end outcome is:

Trust in an effective and efficient public sector.

“Trust in …” is where Parliament and the public know whether public entities (including central and local government entities, and others such as schools) are–

  • carrying out their activities effectively, efficiently, and appropriately;
  • using public funds wisely; and
  • reporting their performance accurately; and know that if this is not the case we will tell them.

“… an effective and efficient public sector” is where public entities operate effectively and efficiently, and with a focus on continual improvement and innovation.

Others who contribute to the achievement of this end outcome are:

  • central government agencies – State Services Commission, Department of the Prime Minister and Cabinet, and the Treasury; and
  • public entities – through their actions and behaviours.

Intermediate outcomes

“Intermediate outcomes” are the outcomes that we can directly influence, which will significantly contribute to the achievement of the end outcome. They are also known as “impacts”.

The desired situation that we aim to create as the direct result of our work is where there is:

  • independent assurance that public entities are acting legally and with probity;
  • advice to improve public entity operations; and where
  • Parliament has control of expenditure.

We achieve this desired situation through the provision of 2 intermediate outcomes:

  • independent assurance and advice; and
  • Parliamentary control of expenditure, delivered through our Controller function and appropriation audit activities.
Independent assurance and advice

We help to ensure the legality and probity of public entity actions by being vigilant for any behaviour that falls below expectations, and by highlighting and investigating any irregularities that we come across in the course of our work.

We contribute to improvement by assessing public entity operations (through our assurance activities), and then telling relevant stakeholders (through our reporting and advisory activities) about:

  • the sufficiency and appropriateness of public entity information systems;
  • the effectiveness and efficiency of public entity operations; and
  • the accuracy and adequacy of public entity reporting.
Parliamentary control of expenditure

We play a key role in ensuring Parliamentary control of expenditure through our Controller function and appropriation audit activities. These activities ensure that expenses or capital expenditure of departments and offices of Parliament have been incurred (or public money spent) within the appropriation or other statutory authority, and are for lawful purposes.

Outputs

In order to achieve the desired situation through our intermediate outcomes, we intend to continue to deliver the following assurance products and services:

  • annual audits;
  • Controller function and appropriation audit;
  • advice to Parliament;
  • inquiries;
  • advice and liaison;
  • working with the profession;
  • wider assurance work;
  • performance audits; and
  • international liaison and involvement.

These are classified into 3 output classes:

Output Class D1 – Reports and advice arising from the exercise of the function of legislative auditor
Reporting to and advising Members of Parliament (either in Select Committees, as Ministers, or as individual MPs) on the results of audits, performance audits and inquiries. Most of this work is done through financial reviews and Estimates examinations.
Responding to inquiries from taxpayers, ratepayers or individual MPs on matters that we think appropriate to investigate.
Providing advice to government bodies and other agencies (e.g. the profession, our international counterparts) on auditing, accountability and financial management in the public sector.
Administering the provisions of the Local Authorities (Members’ Interests) Act 1968.
Output Class D2 – The Controller function and the appropriation audit
Providing independent assurance to Parliament that expenses or capital expenditure have been incurred (or public money spent) within the scope, amount and period of the appropriation or other statutory authority, and are for lawful purposes.
Output Class D3 – Provision of audit and other assurance services
This output class relates to the conduct of the annual audits of public entity financial reports.
Audit service providers (Audit NZ and private sector auditors) also provide other auditing and assurance services to public entities.

Our business strategies

To enhance the achievement of our outcomes, we have developed 3 business strategies. They have emerged through work on our Strategic Plan, and cover both of our intermediate outcomes. For each business strategy, we have identified specific areas of focus to concentrate on during the next 3 to 5 years. The 3 strategies and respective areas of focus are:

Shaping our services
  • ongoing research and development, product development, and innovation;
  • changes to the breadth and depth of our current assurance products and services; and
  • enhancement of our Strategic Audit Planning process and deployment of our full range of assurance interventions around issues and risks.
Building our capability
  • Continual adaptation of our organisation (including enhancing our capabilities).
Fostering relationships and ways of working
  • Facilitating opportunities for collaborative working.

This Annual Plan details the specific objectives we intend to implement over the 2005-06 year to achieve our 3 business strategies. Our objectives for a given year are within the context of a broader 3-year plan of action.

Within the areas of focus, our emphasis for 2005-06 will be on development of our people and our products/services (see pages 69-71). This builds on our work already completed in 2004-05.

Summary: Our key objectives for outcomes in 2005-06

We aim to achieve the following objectives in relation to our outcomes during 2005-06:

As a result of our work, maintain and/or improve our desired impacts, specifically:

  • improvements over time in Parliament’s and the public’s perceptions of public sector performance and trustworthiness;
  • public entities that act legally, ethically, and with probity;
  • improved public entity operations; and
  • Parliamentary control of expenditure.

In relation to the ongoing development of our outcomes framework, we also propose the following “management actions” during 2005-06:

  • complete the implementation of our agreed impact evaluation process for performance audits; and
  • develop an evaluation framework to assess the impact of the implementation of our Strategic Plan.

Strategic risks

Our risk management framework

We have developed a comprehensive risk management framework for the Office in consultation with key staff. This was introduced and integrated within our strategic and business planning processes during 2003-04. Further work is still needed to ensure that our framework is being applied.

We define risk management as –

The culture, processes and structures that are directed towards the continuous management of both opportunities and adverse effects impacting on our business.

The key features of our risk management framework are:

  • It is aligned to our business outcomes and the strategies designed to achieve these outcomes.
  • The culture within the Office accepts that risk management is a critical part of our business. Management’s acceptance of ownership and accountability to effectively manage agreed risks and take an appropriate degree of mitigating action is an essential part of this culture.
  • We apply a defined methodology that enables us to identify and assess risks and make decisions about appropriate ways to mitigate the risks identified.
  • We have clear statements of our risk management policy, principles, and practice.
  • Our risk management process includes the mechanisms we use to: identify and assess risks; develop specific mitigating strategies, plans or actions; and record, monitor and review.

Note: The governance arrangements associated with our risk management framework are outlined on pages 26-30.

Our risk management process

Annually, we review our strategic risks. This review considers any changes to the strategic risks or to the probability of occurrence, or likelihood of consequence, if the risk materialises.

We already have in place a number of mitigation strategies and processes. In addition, annually, we determine specific actions we will take to enhance our existing strategies or to provide additional mitigation. These actions are then integrated into our annual and business planning processes, and responsibilities for completion are assigned.

On a quarterly basis, we review progress with the implementation of these specific annual actions, and we confirm that there have been no known events that may have affected our assessment of the level of risk.

Progress in the implementation of our risk management framework

In our Annual Report 2003-04, we noted that an area of risk management that we wanted to develop further is–

Embedding our culture of risk management into all our management activities.

By this we mean ensuring that:

  • our Risk Manager role is able to effectively evaluate the risks within management strategies;
  • we have the processes and systems in place to support effective risk management; and
  • we have clear management accountabilities for proactive identification and management of risks.

Our strategic risks

In implementing our risk management framework, we have identified the following key strategic risks to the achievement of our Strategic Plan and our outcomes:

  • serious audit failure;
  • not maintaining our credibility and reputation;
  • not meeting our stakeholders’ expectations;
  • not maintaining and building our capability;
  • failure to successfully implement our Strategic Plan; and
  • not maintaining our independence.

We have a comprehensive range of mitigation strategies in place, including actions we took and enhancements that we made to our existing mitigation strategies during 2004-05. We have also identified specific actions to take during 2005-06.

These specific actions – listed below and on page 23 – represent what we propose as “management actions” or areas for research and development. This demonstrates the extent of integration between our annual planning and our risk management.

Serious Audit Failure

This is the risk that the office issues an incorrect audit opinion with material impact, or a report that is significantly wrong in nature or process. In addition to our existing mitigation strategies, we intend to carry out the following specific actions during 2005-06:

  • implement the outcomes from our quality assurance review of all products; and
  • research and development into the enhancement of our annual audits, with a focus on non-financial reporting, waste, probity, governance and, to some extent, accountability.
Not maintaining our credibility and reputation

This is the risk that there is damage to the credibility and reputation of the Office. In addition to our existing mitigation strategies, we intend to carry out the following specific actions during 2005-06:

  • complete the introduction of our agreed evaluation framework for performance audits;
  • implement revisions arising from a review of our enhanced Strategic Audit Planning process;
  • develop a legislative compliance framework for the Office;
  • develop measures to assess the quality, adequacy, effectiveness, and appropriateness of our governance framework; and
  • review the application of our agreed risk management processes, and clarify the management accountabilities for risk management.
Not meeting our stakeholders’ expectations

This is the risk that we are not seen to meet our stakeholders’ expectations. In addition to our existing mitigation strategies, we intend to carry out the following specific actions during 2005-06:

  • complete the implementation of our stakeholder feedback study; and
  • continue our projects on NZ IFRS, LTCCPs, and the PFAA and CEA.
Not maintaining and building our capability

This is the risk that the Office is unable to attract and retain suitably qualified staff, and maintain its investment in their development. In addition to our existing mitigation strategies, we intend to carry out the following specific action during 2005-06:

  • implement our “key objectives for capability” (see page 26).
Failure to successfully implement our Strategic Plan

This is the risk that we will not sufficiently progress the implementation of our 5-year Strategic Plan. In addition to our existing mitigation strategies, we intend to carry out the following specific actions during 2005-06:

  • develop an evaluation framework for measuring the implementation of our Strategic Plan; and
  • review the linkages between our Strategic Plan, performance management, and remuneration.
Not maintaining our independence

This is the risk that our independence is compromised. Our existing mitigation strategies will continue during 2005-06.

Summary: Our key objectives for risk management in 2005-06

In relation to our risk management framework, we propose the following “management actions” for 2005-06:

  • review the application of our agreed risk management processes, and clarify management accountabilities for risk management.

Capability

Our capability requirements

We define capability as:

Having, or having access to, a combination of people, resources, and systems that enables us to:

  • deliver our intermediate outcomes and our outputs to meet current needs and stakeholder satisfaction; and
  • maintain our ability to cope with likely future changes.

When we developed our 5-year Strategic Plan, we undertook a comprehensive review of our existing capability. We concluded that the Office was struggling to maintain capability, and that we had limited ability to respond proactively to the future challenges facing the Office.

On this basis, Parliament provided significant additional funding for us to invest in the future capability of the Office. Since 1 July 2004, we have applied this additional funding through the direct appointment of additional staff, mainly in our performance audit group, and, increasingly, through the contracting in of additional resources in the areas of research and development, and inquiries.

Our current capability to respond

We face the following challenges in relation to our current capability:

  • We are experiencing difficulties in recruiting suitably qualified staff because of labour market shortages – in particular, for Audit NZ and for specialist technical roles.
  • We are still adjusting to our increased capability, and consequent flow-on pressures on other teams within the Office, as well as to the need to develop more structured approaches to team management.
  • We have not invested as much in staff development as we might like, particularly for leadership development.
  • Our timeliness remains variable for inquiries.
  • Our ability to have flexible access to the required capability – in particular, for inquiries and research and development – requires further consideration.
  • There are further opportunities for operational and corporate efficiencies.

Summary: Our key objectives for capability in 2005-06

In relation to our capability, we propose the following “management actions” during 2005-06:

  • implement Leadership Development initiatives for senior staff within the Office, including, for example, individual development plans and specific leadership development learning interventions.
  • design and implement a technical/professional development programme for performance auditors; and
  • devise a strategy for difficult-to-recruit positions, including the consideration of options to extend or rotate existing staff, and seek interest in secondments from overseas.

Governance

Our governance framework

The Office has an established, sound governance framework.

We define governance as “the system by which the Office is directed, managed, and held to account.” It incorporates the culture, structures, and processes for decision-making, accountability, control and behaviour, and it provides the framework within which:

  • the Auditor-General is accountable to Parliament for his stewardship of the resources entrusted to him;
  • the strategies and goals of the Office are set, promoted, and achieved;
  • the key risks to the Office are identified and managed; and
  • ethical values and behaviours, and responsible decision-making are promoted, and sanctions are applied against inappropriate actions and behaviours.

Our key governance relationships

Our key governance relationships define the accountability and reporting parameters of the Office, and are between:

  • the Auditor-General and Parliament (through the OPC), in relation to his stewardship;
  • senior management and staff, in relation to the strategic leadership and management of the Office;
  • the OAG and our Audit Service Providers; and
  • the Office and its stakeholders, in relation to the provision of services.

Our governance framework

The main components of our governance framework are:

Strategy and Purpose

Our governance framework operates within the context of the Office’s Strategy and Purpose. Our purpose is set out in the Public Audit Act 2001. The Auditor- General proposes his Strategy to Parliament through the OPC at least every 3 years. In 2004, the Auditor-General proposed his 5-year Strategic Plan to cover the balance of his term in office. This was endorsed by the OPC.

Risk Management Framework

Our risk management framework is an integral component of our governance framework. It sets in place the system by which risks to the Office are proactively identified and managed.

Governance Activities

The 2 primary activities over which governance is required are management and strategic leadership. We consider 4 aspects in relation to our governance activities to enable us to determine the appropriate culture, structures, and processes that we need for effective governance. These aspects are:

  • decision-making;
  • accountability;
  • control; and
  • behaviour.
Monitoring and reporting framework

Vital to our governance framework is an integrated system of monitoring and reporting. This enables us to demonstrate – internally and externally – performance (against our outcomes, risks, outputs, and business strategies) and conformance (compliance with legislation, regulations, and published standards, and how we meet stakeholder expectations of probity, accountability, and openness).

Review and continuous improvement

We are committed to the ongoing review and development of our governance framework. This will include, from time to time, independent review of the framework. We also intend to devise measures to assess the quality, effectiveness, and appropriateness of our governance framework.

Our governance structure

Our governance structure comprises 2 elements:

  • our leadership model; and
  • supporting governance bodies and mechanisms.
Our leadership model

We introduced a new “leadership model” in 2004 to ensure better alignment with our Strategic Plan and to reflect the move from contestability to our audit resourcing model. During 2004-05, we continued to refine our leadership model. There are 4 leadership groups within the Office. These are:

  • Strategy Governance Team – responsible for monitoring progress in implementing our Strategy, and for resolution and approval of policies that affect the Office as a whole.
  • OAG Leadership Team – the management team with collective accountability for the operational performance of the OAG.
  • Audit NZ Executive Leadership Team – the management team with collective accountability for the operational performance of Audit NZ.
  • Combined Management Group – comprises all members of the 2 leadership teams, and is responsible for strategy development.
Supporting governance bodies and mechanisms

We have in place a range of supporting governance bodies and mechanisms, which are designed to strengthen the effectiveness of the Office’s governance. These were described in detail in our Annual Report 2003-04 on pages 51-54.

Our key supporting governance bodies and mechanisms are:

  • The Audit Committee.
  • Internal Audit.
  • External Audit.
  • Opinions Review Committee.
  • Our Quality Assurance (QA) Regime.
  • Internal Peer Review.
  • External Peer Review.
  • Independence Review Committee.
  • Local Authorities (Members’ Interests) Act Review Committee.
  • Project Steering Committees.
  • Project Management.
  • Independent Evaluation of Auditor Appointments.

Summary: Our key objectives for governance in 2005-06

During 2004-05, we implemented several governance-related actions, and we have identified other areas that we wish to strengthen. In relation to our governance framework, we propose the following “management actions” during 2005-06:

  • review the linkages between our Strategic Plan, performance management, and remuneration;
  • complete the implementation of our stakeholder feedback study;
  • develop measures to assess the quality, adequacy, effectiveness, and appropriateness of our governance framework;
  • review our professional methodologies for performance audits and Audit NZ’s annual audits;
  • implement the outcomes from our review of quality assurance over all our products; and
  • develop a legislative compliance framework for the Office.

Measurement

Our measurement framework

Improving the quality of financial and non-financial reporting in the public sector is one of our key objectives. We have therefore put a lot of effort into designing meaningful measures for the Office. Our measurement framework covers the areas of outcomes, outputs, governance, risk, capability, and Strategic Plan implementation.

For each of these areas, we consider how we can best assess:

  • Impact – the contribution made to an outcome by a specified set of outputs, or actions, or both; and
  • Performance – quantity, cost, and timeliness, and, increasingly, quality, effectiveness, and adequacy.

Using our measurement framework, we have set the following proposed measures for 2005-06 in the areas of outcomes, capability, risk, and governance.

Our proposed measures for outcomes in 2005-06

To enable us to assess our progress towards achieving our outcomes, our impact evaluation considers:

  • whether the desired state has been achieved (maintained and/or improved); and/or
  • the quality of our interventions.

End outcome

We will measure our impact/contribution to our end outcome – “Trust in an effective and efficient public sector” – by assessing the extent of improvements over time in Parliament’s and the public’s perceptions of public sector performance and trustworthiness.

A key measure we will use is that:

  • New Zealand maintains or improves its Transparency International ranking.

Intermediate outcome 1

We will measure our impact/contribution to our first intermediate outcome – “independent assurance and advice” – by assessing whether:

  • real change and improvement is happening as a result of our work; and
  • the Auditor-General is perceived by stakeholders as an essential part of the parliamentary system of government.

Key measures we will use are:

  • actions others take as a result of our work;
  • stakeholder assessment of our relevance and timeliness, and the value we add;
  • reduction over time in the recurrence of key themes in inquiries we conduct; and
  • improvements in aspects of entity management (as measured through our assessments).

Intermediate outcome 2

The changes made by the PFAA to the Controller function have affected how we measure our impact/contribution to our second intermediate outcome – “Parliamentary control of expenditure”. We intend to develop appropriate impact measures for this outcome during the 2005-06 year.

Our proposed measures for capability in 2005-06

In our Annual Report 2003-04, we trialled an example of good practice reporting in our Capability Report on pages 67-93. This capability report considered not only the provision of data about the current size and scale of, and extent of investment into, our capability, but also attempted to draw some conclusions about the adequacy, quality, and effectiveness of our capability. It considered the following capability questions:

Adequacy
  • Does the Office have – or have access to – enough skilled, experienced, and competent people?
  • Can the Office attract suitably qualified staff?
  • Does the Office have a ready supply of future leaders?
  • Does the Office have sufficient working capital to sustain its work?
  • Does the Office have adequate information systems to effectively perform its work?
Quality
  • • Does the Office maintain and enhance the skills of its existing staff?
  • Does the Office create an environment where skilled people want to stay and work?
  • Does the Office facilitate diversity?
Effectiveness
  • Does the Office have effective and efficient mechanisms to store, retrieve, and share information and knowledge?
  • How skilled, experienced, and competent are our people to perform their work?
  • Do our systems and processes support the work of the Office?

We will continue to provide similar reporting in the future as we consider it provides a more complete picture of our capability to respond.

The specific measures we will use in 2005-06 to help us form views on our capability will be:

Current capability

Base data:

  • The current size of our staff resources.
  • The distribution of our staff by function, gender, and ethnicity.
  • The current size of our contracted resource base.
  • The scale of our information technology systems.
  • The average numbers of applicants for key Office vacancies.
  • The percentage of senior staff perceived to have future potential.
  • The number of staff who have been internally promoted to senior positions.
  • The Office’s current working capital (as at 30 June 2006).
Maintaining and enhancing our capability
  • Average time in role.
  • Percentage of staff holding required tertiary qualifications.
  • Average time and spending on training and development.
  • Pass rates for professional accreditation.
  • Turnover.
  • Rates of sick leave.
  • Staff satisfaction.
  • Staff assessment of the extent of innovation and collaborative working that occurs and is encouraged.
  • Staff assessment of quality and usefulness of business processes and systems.
  • Staff assessment of the adequacy of the resource base (whether the Office has, or has access to, enough suitably qualified staff to do its work).
  • Equal Employment Opportunity initiatives substantially implemented (90%).
  • Effectiveness for Māori initiatives substantially implemented (90%).
  • Audit NZ ratio of senior to junior staff.
  • Ratio of operational to non-operational staff.
  • Strategic Plan implementation substantially achieved (90%).

Our proposed measures for risk management in 2005-06

We have designed indicators to assess the success of our risk management strategies in managing or mitigating our strategic risks. (Some of these, by their very nature, are a subset of our outcome, output, or capability measures.) We propose the following measures for risk management in 2005-06:

Strategic risk 1

We will measure how we have managed/mitigated the risk of “serious audit failure” by assessing whether our mitigation strategies have been effectively implemented.

A key measure we will use is that:

  • our risk mitigation actions for 2005-06 are substantially implemented (90%).

Strategic risk 2

We will measure how we have managed/mitigated the risk of “not maintaining our credibility and reputation” by assessing whether there has been any damage – real or perceived – to the credibility and/or reputation of the Office.

Key measures we will use are:

  • there are no instances where our credibility/reputation is badly damaged or litigation action is taken against the Office.
  • sample stakeholders’ assessment of perceptions of the Office’s credibility and reputation.

Strategic risk 3

We will measure how we have managed/mitigated the risk of “not meeting our stakeholders’ expectations” by assessing whether our stakeholders perceive that we add value, are timely, and are relevant.

A key measure we will use is:

  • sample stakeholders’ assessment of the value we add, our timeliness, and our relevance.

Strategic risk 4

We will measure how we have managed/mitigated the risk of “not maintaining and building our capability” by assessing the Office’s ability to attract and retain suitably qualified staff, and to maintain its investment in their development.

This will be covered by our capability measures (see pages 31-33).

Strategic risk 5

We will measure how we have managed/mitigated the risk of “failure to successfully implement our 5-year Strategic Plan” by assessing the extent of implementation of our Strategic Plan activities.

A key measure we will use is that:

  • implementation of our Strategic Plan is substantially on target (90%).

Strategic risk 6

We will measure how we have managed/mitigated the risk of “not maintaining our independence” by assessing whether there have been any failures of independence by the Office – including breaches of the Auditor-General’s auditing standard on independence by his employees and agents.

Key measures we will use are:

  • there are no breaches of the Auditor-General’s auditing standard on independence or, if any breaches are identified, they are resolved promptly; and
  • Independence Declarations for all OAG and Audit NZ staff are completed every 6 months.

Our proposed measures for governance in 2005-06

We noted on page 56 of our Annual Report 2003-04 that –

Little work has been done internationally on measuring the quality, appropriateness, adequacy or effectiveness of the governance arrangements of entities.

The Office has been a strong advocate for stronger reporting and measurement of governance.

During 2005-06 we intend to develop measures to assess the quality, adequacy, effectiveness, and appropriateness of our governance framework. We will report on our progress to develop these governance measures.

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