Part 1: Our work programme

Annual report 2004-05.


Our annual planning, particularly our Strategic Audit Planning, identifies our work programme for the coming year. Our Annual Plan sets out our proposed performance audits and special studies, and our proposed programme for research and development. We consult with Parliament to finalise our work programme.

In this Part, we describe:

  • the work of our auditors, and the support we provided to them;
  • the performance audits and other studies we reported on;
  • the inquiries we reported on;
  • our research and development programme;
  • changes to the Controller function; and
  • our advice and liaison.

Full information about our performance against our targets is in Part 3 (Statement of Objectives and Service Performance, pages 61-75).

The work of our auditors

Most of our effort was in the annual audits of the financial statements of public entities. We carried out 4,121 audits during 2004-05.

The Auditor-General’s Auditing Standards

The Auditor-General’s Auditing Standards establish the minimum standards to be applied to audits, inquiries and other auditing services conducted on behalf of the Auditor-General. Under section 23 of the Public Audit Act 2001, the Auditor-General must publish the auditing standards, by way of a report to the House of Representatives, at least once every 3 years. Each Annual Report must include a description of any significant changes made to the standards during a financial year. The auditing standards consist of the ethical and professional standards of the Institute of Chartered Accountants of New Zealand (ICANZ), supplemented by the Auditor-General’s Statements, and (where an ICANZ standard does not exist) the Auditor- General’s Specific Standards.

In May 2005, the Auditor-General republished his Auditing Standards. These standards are available on our website (

During the year, we revised and enhanced the Auditor-General’s Statement on Independence to align it with the ICANZ Code of Ethics. We also revised the Auditor-General’s Auditing Standard The Appropriation Audit and the Controller Function, because of the legislative changes to the Controller function that took effect from 1 July 2005.

Reviewing auditor performance

We aim to review the performance of each of our appointed auditors once every 3 years. We may initiate follow-up reviews if we identify a need for improvement.

In 2004-05, we met our target of 45 reviews. Consistent with previous years, the work we reviewed was, with only a few exceptions, of good quality. We followed up on the exceptions.

Balance of non-financial to financial audit work performed

In our Strategic Plan, we said we wanted to increase, over time, the amount of non-financial audit work relative to financial audit work.

During 2004-05, 87% of Audit NZ’s work on annual audits was financial, and 13% was non-financial. This was consistent with the ratio of work performed in the previous 2 years, so we will use this as our benchmark.

Use of senior and junior audit staff

In our Strategic Plan, we also said we wanted to see senior staff more involved in the annual audits. This would better mitigate risk and improve the quality of the audits.

In 2004-05, 26% of the hours involved in annual audits were performed by senior Audit NZ staff, and 74% by junior staff members.

We will use this as our benchmark and report changes over time.

Fewer non-standard audit reports being issued over time

A non-standard audit report is one issued in accordance with the New Zealand Institute of Chartered Accountants Auditing Standard No. 702: The Audit Report on an Attest Audit (AS-702). A non-standard audit report contains:

  • a qualified audit opinion (i.e. a “disclaimer of opinion”, an “adverse” opinion or an “except-for” opinion);
  • and/or an explanatory paragraph.

A full definition of a non-standard audit report is set out on pages 28-29 of our report Central Government: Results of the 2003-04 Audits.

Figure 1 shows the non-standard audit reports issued in 2004-05. Information for the previous year is provided in Figure 2.

Figure 1
Non-standard audit reports issued, 2004-05

Type of non-standard audit report

Schools Other Total
Unqualified opinion

With explanatory paragraph or reference to a breach of law 148 62 210
Qualified audit opinion

Disclaimer of opinion 2 6 8
Partial disclaimer of opinion 0 4 4
Adverse opinion 1 9 10
Partial adverse opinion 0 7 7
Except-for opinion 44 33 77
Total 195 121 316
(Total of all audit reports) 2,645 1,476 4,121

Figure 2
Non-standard audit reports issued, 2003-04

Type of non-standard audit report

Schools Other Total
Unqualified opinion

With explanatory paragraph or reference to a breach of law 186 24 210
Qualified audit opinion

Disclaimer of opinion 2 0 2
Partial disclaimer of opinion 0 29 29
Adverse opinion 0 9 9
Partial adverse opinion 0 6 6
Except-for opinion 65 29 94
Total 253 97 350
(Total of all audit reports) 2,682 1,388 4,070

Fewer non-standard audit reports were issued as a proportion of all audit reports issued during the year – from 8.6% in 2003-04 to 7.7% in 2004-05.

There were a number of reasons for this decrease:

  • Fewer school audit reports contained explanatory paragraphs, because fewer schools were closed or merged during 2004-05.
  • Fewer school audit reports contained except-for opinions. Fewer school boards had difficulty in complying with FRS- 15: Provisions, Contingent Liabilities and Contingent Assets. (FRS-15 requires the inclusion of a provision in the Board’s financial report about its obligation to maintain the properties – which are owned by the Ministry of Education – in “good order and repair”.)
  • Fewer audit reports contained a partial disclaimer of opinion. Fewer entities came under our mandate for the first time in 2004-05, compared to 2003-04. Entities where there has not been an audit in the previous year always receive a partial disclaimer of opinion, because there is no assurance on the closing position of the previous year.

On the other hand:

  • Slightly more audit reports contained a disclaimer of opinion. This was because a number of audits in arrears were completed during the year, where we were unable to gain assurance on the financial statements.
  • More ‘Other’ audit reports contained explanatory paragraphs outlining that the financial statements had been appropriately prepared on a disestablishment basis. A greater number of entities were wound up during 2004-05.

Implementing our allocation, tendering, and fee monitoring systems

The Auditor-General allocates most audits of public entities, and uses competitive tendering for the audits of some entities with a strong commercial focus. During 2004-05, the Auditor-General reappointed existing auditors to conduct the audits of 110 public entities and their subsidiaries. A competitive tender was used to select the auditors of 3 public entities with a strong commercial focus.

Of the 110 public entities, 14 asked us to provide comparative fee information to help resolve concerns about the fee proposed by the appointed auditor. In all cases, the auditor and the entity resolved the matter based on that extra information.

When existing auditors are appointed for a further (normally 3-year) period, they negotiate hours and costs with the audit entity in the first instance. The negotiation happens after we have considered whether the auditor’s proposal is consistent with our view of the resources required for the audit, and whether the proposed fees are generally consistent with current market rates.

We established techniques for measuring the comparability of audit fees within the local government sector. Using these techniques to review auditors’ audit fee proposals has minimised debate about audit fees, in spite of some substantial fee increases arising from auditor salary costs over the last 3 years. The salary costs have increased around 18% to 25%, and more audit time and effort has been required to meet new accounting and auditing standards.

We continued to examine and determine the status of several subsidiaries of public entities. During 2004-05, 93 entities were added to our audit portfolio (51 as ‘controlled entities’, and 42 by statute or as subsidiaries of public entities).

An independent reviewer evaluates the integrity of the methods and systems we use to allocate and tender audits. The report of the independent reviewer for 2004-05 is reproduced on pages 14-15.

Audit New Zealand’s client survey

Audit NZ carried out its independently administered survey of clients (that is, public entities for which it is the appointed auditor). Face-to-face interviews conducted with Chief Executives and Chief Financial Officers of a sample of Audit NZ clients considered their perceptions of:

  • the quality of the work of Audit NZ;
  • the quality of their relationships with Audit NZ;
  • the expertise of Audit NZ staff;
  • their understanding of Audit NZ’s services;
  • their intention to buy additional assurance services; and
  • their overall degree of satisfaction.

Audit NZ received an average rating of 76% for overall client satisfaction.

As in previous years, clients rated the quality of Audit NZ’s work very highly, and indicated that they greatly valued the interaction and relationships they had with senior Audit NZ staff. However, they continued to question the depth of sector and business knowledge of junior staff.

Performance audits and other studies

In our Annual Plan 2004-05, we described the performance audits and other studies that we intended to produce during the year. (A performance audit is a significant audit covering value-for-money or issues of effectiveness and efficiency. We also undertake other studies, which may result in published guidance on governance or topical public sector accounting and auditing issues.) We were not able to complete all the work we had proposed in our Annual Plan, because:

  • in some cases, entities had initiated their own internal or independent reviews, or were undergoing legislative or structural change;
  • when we undertook full project scoping, it became clear in some cases that our initial proposal needed to be amended; and
  • other events happened that changed our priorities.

Also, it took us longer than anticipated to recruit and induct more performance auditors.

The 13 performance audits and other studies that we did complete during 2004-05 are summarised below.

(Based on our Strategic Plan, we received funding to increase the number of performance audits and other studies that we do each year, from 10 to 21, by 30 June 2006. We are now in a position to achieve this increase.)

New Zealand Trade and Enterprise: Administration of grant programmes

New Zealand Trade and Enterprise (NZTE) administers grants to firms, sectors, and regional organisations to promote economic growth in New Zealand. Our audit examined 5 grant programmes to assess whether they were being administered effectively and efficiently, and in keeping with the policy parameters set by Cabinet.

We found:

  • variable data collection and reporting practices;
  • variable standards of documentation;
  • an inconsistent approach to the assessment of risk; and
  • inconsistent approaches to monitoring.


We made 47 recommendations to NZTE, primarily recommending that NZTE review all its grant programmes to ensure that it is administering them appropriately. This includes ensuring that a sound set of administrative principles and standards are applied.

What happened as a result of our work

NZTE has undertaken a major business process improvement project to improve its administration of grant programmes. We are meeting with NZTE on a quarterly basis to discuss progress.

The Foreign Affairs, Defence and Trade Committee considered our report. In August 2005, we took part in a joint seminar with NZTE to inform other agencies about our audit process and the expectations we have for the effective and efficient administration of grant programmes.

We intend to conduct a follow-up audit of NZTE in 2 years to determine if our recommendations have been implemented, and to what effect.

We also intend to undertake, every year, an audit of grant programmes administered by other public entities.

Ministry of Defence and New Zealand Defence Force: Further report on the acquisition and introduction into service of Light Armoured Vehicles

This was our second report into issues relating to the acquisition of 105 Light Armoured Vehicles (LAVs) for the New Zealand Army.

In this follow-up audit, we looked to see if progress had been made since our first report in 2001, and also examined issues arising from the introduction into service of the LAVs.

We found that the Army’s plan for using the LAVs was significantly different to that originally put to Cabinet, and we saw no evidence that Cabinet had been advised of any change.

We tried to establish whether 105 LAVs were needed to meet current requirements. We were unable to do this because of the large degree of flexibility built into these requirements.

Our first report made specific recommendations about how governance over the LAV project could be improved. We noted in our follow-up audit some problems during the introduction of new governance systems, but are satisfied that the Defence agencies have generally improved governance over the LAV project.

We also noted that the Defence agencies have introduced a new Capability Management Framework, designed to ensure that future proposals are supported by better analysis. To help achieve this, there has been a significant commitment to life cycle costing analysis throughout all the Defence agencies.

We noted the funding and personnel shortfalls that have faced the LAV project, and the efforts by the Defence agencies to manage these with no additional capital funding.


We made 9 recommendations about the LAV project, military capability acquisition projects in general, and the Capability Management Framework.

What happened as a result of our work

The Foreign Affairs, Defence and Trade Committee considered our report.

We understand that our audit findings and recommendations have been used by the Defence agencies to contribute to the ongoing enhancement of military capability acquisition projects. They have already implemented a number of our recommendations.

Department of Conservation: Administration of the Conservation Services Programme – Follow-up audit

This was a follow-up to our 2002 report on the administration of the Conservation Services Programme by the Department of Conservation. We looked at those aspects of the Conservation Services Programme that affected commercial fishing, to see what progress had been made since our last report.

The Department of Conservation and the Ministry of Fisheries have implemented most of our earlier recommendations. However, some work remains to be carried out before all our recommendations are implemented in full.

We concluded that more work should be done by the Department of Conservation to improve: the methodology for estimating risk to protected species populations from human activities, and the accountability for the Conservation Services Programme.

What happened as a result of our work

The Local Government and Environment Committee and the Primary Production Committee considered our report, and noted the progress made by the Department of Conservation and the Ministry of Fisheries.

This audit was a “good news” audit for the Department of Conservation. We do not propose to follow up this audit.

Progress in implementing key recommendations of the 1996 Transport Committee inquiry into truck crashes

This was a report of progress in the implementation of recommendations arising from the Transport Committee’s inquiry into causes of fatal truck crashes. The Committee made 67 recommendations, with 7 to be implemented immediately.

Five of the 7 recommendations were implemented in a timely manner, and 2 were not – although substantial progress had been made.

We were disappointed with how slowly some of the other 60 recommendations had been acted upon. However, the number of fatal truck crashes is declining.

We are still concerned about the poor quality of heavy vehicle brakes. In 2003, 65% of trucks surveyed failed the minimum brake requirements.


We made 2 recommendations:

  • that the Ministry of Transport resume its regular progress reports to the Transport and Industrial Relations Committee; and
  • that the Ministry of Transport report on action taken to implement the other 60 recommendations from the 1996 inquiry.

What happened as a result of our work

The Transport and Industrial Relations Committee considered our report, and asked the Ministry of Transport to provide a briefing. The Committee resolved that the Ministry of Transport is to provide an annual status report on truck safety to the Committee.

Horizons and Otago Regional Councils: Management of freshwater resources

Our audit looked at how the Resource Management Act 1991 framework has been implemented for managing freshwater in the regions managed by the Horizons and Otago Regional Councils. Our aim was to identify good practice by these 2 councils, or where improvements could be made that would be useful for all regional councils.

Overall, good progress had been made in planning and implementing water allocation frameworks. Improvements were needed in compliance and effectiveness and efficiency monitoring.


We made a number of recommendations, and identified examples of good practice and innovation, in each of the 4 areas studied: planning, implementation, monitoring, and acting on information and informing communities.

What happened as a result of our work

The Local Government and Environment Committee considered our report. We have briefed regional council Chief Executives, Councillors and senior managers on our report, as well as the Minister for the Environment and staff of the Ministry for the Environment.

One regional council has used our audit criteria for its own audit of its management of freshwater resources.

Pharmaceutical Management Agency: Changes to the frequency of medicine dispensing

In October 2003, the Pharmaceutical Management Agency (Pharmac) changed the rules for dispensing medicines. At the time, it projected large savings to District Health Boards. One year into the new dispensing regime, we examined whether the projected savings had been achieved, and how well Pharmac had managed the risks to savings and the effects of all-at-once dispensing on patients and others.

Pharmac’s calculation of saving was reasonable, although the calculations did not cover the implementation period. We identified opportunities for Pharmac and the wider public sector to improve the quality of information underpinning decision-making.


We made 6 recommendations, around the need: to include assumptions, uncertainties, and limitations around estimates in efficiency proposals, and to include the range of likely results; for independent research to assess what effect, if any, dispensing regimes (30- day or 90-day) have on patients’ use of medicine; and to agree responsibility for monitoring unused medicines.

What happened as a result of our work

The Health Committee considered our report. The report confirmed that Pharmac had reasonably and accurately calculated projected savings from the change to “all at once” dispensing, so we do not propose to take any further action.

Ministry of Fisheries: Follow-up report on information requirements for the sustainable management of fisheries

In 1999, we drew attention to the risks involved in managing New Zealand’s fisheries. We were concerned that the Ministry of Fisheries did not have enough information to ensure that the fisheries were being managed in a sustainable way, and to their full economic potential. This was a follow-up audit to our 1999 report, to see how well the Ministry had implemented our 7 recommendations.

We were encouraged by the progress the Ministry has made to date. However, we consider further improvements can be made.


We made an additional 4 recommendations to strengthen areas highlighted in our earlier report.

What happened as a result of our work

A Select Committee did not review the report. However, the Ministry of Fisheries has noted our recommendations.

We propose to follow up with the Ministry later in 2005 on the progress made against our recommendations, especially considering the recent realignment of the Ministry of Fisheries’ strategic direction.

In particular, we will monitor the progress made on our recommendation that, where it is not known if the current levels of fishing, or the current total allowable commercial catch, are sustainable, the Ministry provide an assessment of the risk to the stock if current fishing and catch levels are maintained.

Civil Aviation Authority: Certification and surveillance functions

This was the third time we reviewed the surveillance function of the Civil Aviation Authority (CAA), because we continued to have concerns about this function. This audit covered both certification and surveillance to assess whether: the certification (or entry) function ensured that prospective operators understood, and were capable of complying with, relevant legislation and other conditions; and an effective surveillance function was operating to ensure that an acceptable level of civil aviation safety was maintained.

Little action had been taken to address our 1997 and 2000 recommendations. After this audit, we still had significant concerns about the surveillance function, particularly:

  • the effectiveness of risk analysis and risk assessment systems;
  • ensuring that risk analysis fed through to surveillance systems; and
  • ensuring that operators, or groups of operators, that were assessed as “high risk” were appropriately targeted in both the depth and frequency of surveillance undertaken.

We also found that CAA inspectors did not always comply with CAA policy, or record all the hours they worked on surveillance. Further, financial and resource demands meant that only essential training of CAA staff had been carried out over the last 3 years, and CAA operational groups did not always adopt the internal auditors’ recommendations for improving their practices.


We made 10 recommendations. Among other issues, the CAA needed to:

  • continue to establish measures to better assess the effectiveness of its safety interventions;
  • improve its analysis of industry information;
  • ensure that CAA inspectors follow the policies and procedures for certification;
  • further refine the tools used to assess risks; and
  • continue with the review of the surveillance function.

What happened as a result of our work

The Transport and Industrial Relations Committee considered our report and invited us to provide a briefing in the next session of Parliament.

The CAA committed to implementing all our recommendations. We will monitor their progress every 6 months.

Effectiveness of controls over the taxi industry

In 1997, we reported on how the Land Transport Safety Authority had administered the ‘fit and proper person’ assessment for those hoping to become taxi drivers. This audit was to see how the Authority had responded to our 1997 report, and to address public and Parliamentary concerns about the quality and safety of the taxi industry. This audit had a wider scope than our earlier report.

Little progress had been made since 1997. Similar issues emerged, relating to the effectiveness of entry controls, the monitoring and enforcement of compliance, and the sharing of information with other agencies.


We made 61 recommendations for improvement.

What happened as a result of our work

The Transport and Industrial Relations Committee considered the report, and invited us to provide a briefing in the next session of Parliament.

The Authority is regularly meeting with the New Zealand Taxi Federation to discuss the taxi industry and the issues in our report. We will follow-up, in the latter half of 2005, on progress made with our recommendations.

New Zealand Trade and Enterprise: Administration of the Visiting Investor Programme

The Visiting Investor Programme (VIP) is a managed visit programme for companies and individuals who are considering New Zealand as a location for establishing all or part of their operations. Our audit examined whether New Zealand Trade and Enterprise (NZTE) had in place robust and appropriate policies and procedures, whether these policies and procedures were being followed, and whether there was appropriate monitoring and evaluation of payments.

This inquiry was completed in conjunction with our performance audit on NZTE’s administration of grant programmes (see page 17).

NZTE did not have comprehensive and clearly established policies and procedures for administering the VIP. We examined files for visits undertaken between 2002 and 2004. We were unable to examine files for visits in earlier years because of poor record-keeping by Trade New Zealand. For those visits where the supporting documentation was sufficiently detailed, the expenditure was appropriate for the nature of the VIP.


We recommended that NZTE create guidance that sets out clearly the types and levels of expenditure acceptable under the VIP.

What happened as a result of our work

NZTE has told us that it is reviewing and updating its guidelines for the VIP. We are meeting with NZTE on a quarterly basis to discuss the progress made to address the matters raised in our report, together with our other report on the administration of grant programmes.

The Foreign Affairs, Defence and Trade Committee and the Commerce Committee have considered our report.

Conflicts of Interest – A guide to the Local Authorities (Members’ Interests) Act 1968 and non-pecuniary conflicts of interest

This report updated our guidance to organisations covered by the Local Authorities (Members’ Interests) Act 1968 about financial conflicts of interests, in time for the local authority elections.

It also provided guidance to members of local authorities about managing their non-financial conflicts of interest. This guidance was new, and was provided in response to demand from the sector.

What happened as a result of our work

The new guidance was well received by the sector, including elected members, chief executives, and legal advisers of local authorities.

After the 2004 local authority elections, we presented seminars about our guidance to new councillors throughout New Zealand.

Government and parliamentary publicity and advertising

This report examined the framework of guidance and administrative practices for publicity and advertising undertaken at public expense – including that undertaken by government departments, Ministers, and parliamentary parties.

The area has been in need of reform for some years and our decision to produce this report followed a number of complaints highlighting inconsistent rules that apply to the various forms of advertising and publicity, and associated weaknesses in the administrative framework.

The report outlined a possible new framework for government and parliamentary publicity and advertising.

What happened as a result of our work

We expect action on our report to occur after the 2005 general election.

The Local Authorities (Members’ Interests) Act 1968: Issues and options for reform

This report highlighted the difficulties we see with the current Local Authorities (Members’ Interests) Act, and suggested options for improving the Act. For a long time, we have considered the 37-year-old Act to be in need of an overhaul.

We suggested that the entire Act needs to be rewritten, and, although it was not appropriate for us to draft the provisions of any new Act, we provided our thoughts on areas that could be enhanced. Our aim was for this report to stimulate discussion among stakeholders and policy makers about the future of the Act.

What happened as a result of our work

The Department of Internal Affairs included the topic on its policy work programme for 2005-06, and we expect to provide the Department with ongoing assistance.

Major inquiries

The OAG responds to enquiries from taxpayers, ratepayers, and individual MPs.

We receive between 150 and 300 enquiries every year. A few of these lead to the Auditor- General conducting major inquiries. We also respond to 80-100 enquiries each year in relation to the Local Authorities (Members’ Interests) Act 1968.

Based on our Strategic Plan, the OAG received additional funding from Parliament to fund our major inquiry work. We have: reviewed how we manage major inquiries; and sought to recruit people to better facilitate the management, conduct, and timeliness of our major inquiries.

Reports on 2 of the inquiries we carried out during 2004-05 were published and presented to Parliament. A brief summary of these is provided below.

Inquiry into the Ministry of Education’s monitoring of scholarships administered by the Māori Education Trust

Concerns were raised about the financial management by the Māori Education Trust of certain publicly funded scholarship schemes, and the quality of the Ministry of Education’s monitoring of the Trust. The funds involved were significant. The Secretary for Education asked the Auditor-General to consider investigating the concerns. We decided to conduct an inquiry into the management of, and monitoring arrangements for, the scholarship schemes.

Overall, the serious concerns raised were not substantiated by our inquiry. However, we did find that the Ministry of Education’s contract management practices and monitoring of its contracts with the Trust had been variable.

Some other improvements were needed, especially in the transfer of responsibilities from the Ministry of Education to the Tertiary Education Commission.


We made 16 recommendations in our report.

What happened as a result of our work

The Ministry of Education and the Tertiary Education Commission are working collaboratively on the recommendations made in our report.

Christchurch Polytechnic Institute of Technology’s management of conflicts of interest regarding the Computing Offered On-Line (COOL) programme

In June 2004, the Auditor-General was asked to inquire into allegations that conflicts of interest existed for certain Christchurch Polytechnic Institute of Technology (CPIT) representatives. The conflicts related to a joint venture business relationship with Brylton Software Limited (BSL), and particularly the Computing Offered On-Line (COOL) programme.

We examined whether CPIT had complied with its internal policies and any contractual obligations. We considered whether CPIT’s judgements or actions were reasonable, based on public sector expectations.

We found that a conflict of interest existed for one of CPIT’s representatives. We were satisfied that the conflict of interest had been appropriately identified and disclosed.

However, this conflict of interest raised a serious management issue for CPIT.

We commended CPIT’s policies and procedures on conflicts of interest. However, in this instance, the policies and procedures did not cover the CPIT representative who was a contractor. We recommended that the policies be enhanced.

We also found that the CPIT Council was not sufficiently aware of the representative’s conflict of interest. In our view, both CPIT management and the CPIT Council could have managed the situation more prudently.


We made 3 recommendations for enhancing CPIT’s conflicts of interest policies and provisions.

What happened as a result of our work

CPIT was considering our report’s recommendations, and what revisions were needed to its policies and procedures on conflicts of interest.

The report has been widely noted by lawyers and other advisers throughout the public sector as a source of guidance on how to manage conflicts of interest.

Our research and development programme

We received new funding in 2004-05 for our research and development programme. We want to be more responsive to our stakeholders’ needs, and to changes in our environment, through the design and creation of innovative assurance products and services.

In our Annual Plan 2004-05, we outlined our initial thinking on a programme of work for research and development. During the year, we made significant progress in 3 areas:

  • audits of LTCCPs and Summary Reports;
  • audit implications of the new public sector management legislation; and
  • auditor readiness in relation to the adoption of standards based on International Financial Reporting Standards.

Our progress in these areas is outlined below.

We also reviewed our capability requirements for research and development, and decided to employ a team to help identify, establish, and complete this work in future years.

Audits of long-term council community plans

The Local Government Act 2002 created a new audit reporting responsibility for the Auditor-General, which comes into effect in 2006. We will audit councils’ LTCCPs. As part of our research and development programme, we put in place a project to manage this new responsibility.

During 2004-05, we finished our methodology for performing the audits of LTCCPs. We looked internationally for audit techniques that would help us to effectively address the principles provided to guide councils’ judgements in consultation and decision-making.

We focused on 3 attributes of LTCCPs:

  • outward focus – that councils have an active approach to understanding community views, consult with interested people and collaborate with other stakeholders where appropriate, and have a clear logic flow that links community well-being and desired outcomes to the activities of the council.
  • use of best knowledge – that councils’ best knowledge is applied throughout the range of areas in which a council is required to make estimations, including assumptions, and financial and performance target estimates.
  • integration – that information within the LTCCP presents a coherent and consistent representation of the council’s future plans that reflects the underlying information, assumptions and policies, plans, and strategies of the council.

While there are experimental elements to our approach, we have considered techniques used in jurisdictions operating in a similar statutory context to New Zealand’s Local Government Act. We have created, consulted on, and tested our approach with local government sector representatives. These representatives have included Local Government New Zealand, the Society of Local Government Managers, and a reference group of council officers and the Department of Internal Affairs.

There are challenges for us in organising and resourcing to perform audits that occur once every 3 years. However, overall we consider that our efforts during 2004-05 place us in a good position to respond to the challenge of the LTCCP audits.

Summary reports

A long-standing concern about the statutory form of public consultation on long-term plans, annual plans, and on the presentation of annual reports, has been their size and therefore inaccessibility to many members of the public.

The Local Government Act 2002 requires councils to prepare summaries for Statements of Proposal if the special consultative procedure is being used. The Act also requires councils to prepare an audited summary annual report.

In our view, the Local Government Act 2002 intends summaries to be for general use, and therefore readily understood by lay readers. They should also stand alone, as many readers will not refer to the more detailed information.

Councils have told us that members of the public find financial information difficult to understand. We consider that financial information has a valid place in the consultation and accountability processes of a council. We therefore worked with the Society of Local Government Managers to help with its initiative to prepare guidance suggesting principles and good practice in preparing summaries.

Audit implications of new public sector management legislation

Parliament passed 4 new pieces of public sector management legislation in December 2004:

  • the Public Finance Amendment Act 2004;
  • the State Sector Amendment Act (No. 2) 2004;
  • the Crown Entities Act 2004; and
  • the State-Owned Enterprises Amendment Act 2004.

Before the legislation was passed, we started a project to ensure a consistent approach to auditing compliance with the new legislation. Through this project, we have:

  • carried out a technical analysis and examined the audit implications of the legislation;
  • updated our manuals, standards, and policies to reflect the audit implications of the legislation;
  • carried out training in Wellington, Auckland, and Christchurch in March 2005 for all appointed auditors and many staff;
  • complemented the training with a supplementary audit brief for 2005 (additional instructions for auditing compliance with the new legislation); and
  • communicated with stakeholders, to reduce the risk of poor co-ordination of audit approaches with the legislative requirements and central agency guidelines.

During 2004-05, appointed auditors were required to:

  • assess entities’ compliance with any new legislative requirements which affected the 2004-05 audit;
  • report on entities’ compliance or noncompliance with the new legislative requirements; and
  • assess and report on entities’ awareness of, and preparedness for, changes that will come into effect after 30 June 2005.

We will review the effectiveness of the project after each of the 2005, 2006, and 2007 audits.

Auditor readiness in relation to the adoption of standards based on International Financial Reporting Standards

The public sector will adopt, from 1 January 2007, New Zealand equivalents of International Financial Reporting Standards (NZIFRS).

During 2004-05, to prepare our auditors and support sector readiness for the adoption of NZIFRS, we have:

  • carried out both high-level and detailed training in NZIFRS for our auditors (Audit NZ as well as a number of other Audit Service Providers);
  • completed a pilot project on one of the more complex local authorities (with a number of subsidiary companies), to assess the effect of NZIFRS implementation (and shared what we learned with our auditors and the sector, through the Society of Local Government Managers);
  • prepared policies on independence issues, covering the work it is appropriate for our auditors to carry out during the transition period, and the type of opinions we will provide on restated opening balances in accordance with NZIFRS;
  • sought information from our auditors about how they are planning to prepare for NZIFRS, and assess what we need to do to further support them; and
  • worked with the Treasury on planning the transition for the Crown, and with the Society of Local Government Managers on transition planning for local government.

Controller function

The “Controller” function of the Controller and Auditor-General involves monitoring departmental and Crown financial reporting systems, to ensure that the release of funds is supported by Parliamentary appropriations and that all expenditure by the Crown and government departments is for lawful purposes.

The Public Finance Amendment Act 2004 made a number of significant changes to the Controller function, which take effect from 1 July 2005 (see our report Central Government: Results of the 2003-04 Audits).

Advice and liaison

Advice to Parliament

We report to MPs – in Select Committees, or as Ministers or individual MPs – on the results of audits. Most of this work is done through financial reviews and Estimates examinations. During 2004-05, we noted an increased demand for our services.

We have also:

  • acted as advisors to Select Committees on the Public Finance (State Sector Management) Bill and the Members of Parliament (Pecuniary Interests) Bill;
  • provided comments to the Parliamentary advisors considering the Land Transport Management Amendment Bill, because of our performance audit on controls over the taxi industry; and
  • commented on other draft legislation, and assisted with the review of regulations and policy proposals.

International liaison and involvement

During 2004-05, we:

  • hosted the 19th Commonwealth Auditors-General Conference, from late-January to early-February 2005;
  • completed a peer review of the Indonesian Audit Office;
  • participated in the fourth meeting of the Steering Committee of the International Organization of Supreme Audit Institutions (INTOSAI) Working Group on Environmental Auditing;
  • organised and chaired the third meeting of the South Pacific Regional Working Group on Environmental Auditing;
  • were appointed to the Steering Committee of the newly formed INTOSAI Professional Standards Committee;
  • participated on the INTOSAI working group on the development of International Standards on Auditing (ISAs);
  • played a full role in the Australasian Council of Auditors-General (ACAG); and
  • hosted a range of visitors from our international counterparts and other public sector bodies.

In our Strategic Plan, we acknowledged both the value and cost of maintaining this international involvement and liaison. We intend to keep our involvement at similar levels.

We reviewed our efforts during 2004-05 to ensure that we were maximising the benefits for the whole organisation.

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