Part 2: Progress with our management and business strategies

Annual report 2004-05.

Introduction

In this Part, we report on our progress to implement our management and business strategies, and their effect on our outcomes, governance, risk, and capability objectives.

We aim to demonstrate good practice in these areas of reporting, and provide Parliament and the public with a fuller picture of our non-financial performance.

Outcome report

We seek to create, through our work, trust in an effective and efficient public sector.2 We do this by providing independent assurance and advice, and control over Parliamentary expenditure.

We assess our contribution to these outcomes through performance measures that consider: the extent of improvements over time in Parliamentary and public perceptions of public sector performance and trustworthiness; whether real change and improvement is happening as a result of our work; whether the Auditor-General is perceived by stakeholders as an essential part of the system; and whether breaches of Parliamentary control of expenditure have occurred.

Results for 2004-05

Measure 1:
New Zealand maintaining or improving its Transparency International ranking

In 2004, New Zealand was ranked second (behind Finland) on the Transparency International (TI) Corruption Perceptions Index. This is an improvement on the result for 2003 (when New Zealand was ranked third equal). New Zealand’s score was 9.6 (up 0.1 on the previous year), while the top score was 9.7, and the lowest was 1.5.

The index ranks countries by the degree to which corruption is perceived to exist among public officials and politicians. In 2004, 145 countries were ranked, drawing on 18 surveys and assessments carried out among business people and country analysts, including residents.

Measure 2:
The actions others take as a result of our work

We measure in 2 ways the actions others take because of our work: whether Select Committees adopt the advice we provide; and the extent to which public entities accept the recommendations we make in our annual audit reports.

Select Committee adoption of our advice

We reviewed a sample of reports provided to Select Committees, and looked to see whether the ‘lines of enquiry’ that we had suggested had been adopted by the Committee.

Figure 3 sets out the data for 2004-05, and shows comparable data for the previous year.

Figure 3
Select Committees’ adoption of our advice

	2004-05	2003-04
Number of reports reviewed	35	19
Proportion of lines of enquiry adopted	59%	74%
Range of rates	13-100%	33-100%

The way Select Committees use our reports is variable, and largely beyond our control.

While it appears from Figure 3 that there has been a decrease in the adoption of our advice, we know that our advice continues to be considered highly valuable, and we feel there is a far greater uptake by Select Committees than indicated in the percentages shown above. During 2005-06, we intend to review the way we assess the Select Committees’ adoption of our advice.

Entity adoption of our recommendations

We assess whether public entities accept our recommendations by reviewing a sample of the entities that Audit NZ audits, by fee and by region. We look at the extent to which the recommendations made in our reports as part of annual audits have been accepted, rejected, considered, or not responded to.

Figure 4 sets out the data for 2004-05, and shows comparable data for last year.

Figure 4
Public entities’ acceptance of our formal recommendations

	2004-05		2003-04
	Number		Number
Recommendations accepted	163	75%	110	48%
Recommendations rejected	18	8%	17	8%
Recommendations noted or under consideration by management	23	11%	60	26%
Client made no response	14	6%	41	18%
Total recommendations (from sample of 30 entities)	218	100%	228	100%

We reported on this for the first time in 2003-04. We know that the nature and volume of Audit NZ’s recommendations to entities will vary from year to year, and that this measure is largely subjective. However, in our view it is still useful to observe trends.

We will consider this further in next year’s Annual Report, when we have data available for 3 financial years.

Measure 3:
Stakeholder assessment of our relevance and timeliness, and the value we add

This was a new measure for 2004-05, and formed part of a broader review of our stakeholder feedback mechanisms. An independent assessor carried out a pilot study to gather feedback from stakeholders, from 3 interviews – one with a Select Committee chairperson, and 2 with representatives of sector organisations.

On a scale from 1 (“strongly disagree”) to 5 (“strongly agree”) the average results were:

We focus on issues of importance: 4.33
We are responsive to our stakeholders: 4.33
Our staff have an excellent sector understanding: 5.00
Our staff work effectively with our stakeholders: 4.33

The results were based on very small sample. We will fully implement the stakeholder feedback study during 2005-06.

Measure 4:
Reduction over time in the recurrence of key themes in enquiries we receive

We responded to 238 enquiries from taxpayers, ratepayers and MPs in 2004- 05, and 106 enquiries relating to the Local Authorities (Members’ Interests) Act 1968.

Many of these were about:

processes and procedures;
the appropriateness of expenditure;
consultation processes of local authorities;
matters arising from the sale and purchase of assets; and
unusual payments and the legal authority for such payments.

Two common themes emerged from our review of all enquiries received:

conflicts of interest – both financial and non-financial; and
advertising and publicity undertaken at public expense.

These themes were common in 2003-04 too.

During 2004-05, we produced guidance on conflicts of interest for local authorities, and published a report on Government and parliamentary publicity and advertising (refer to page 24).

We would expect to see these 2 themes recurring less often in the future.

Measure 5:
Improvements in aspects of entity management (as measured by our assessments)

In the central government sector we have, since 1994, analysed trends in the assessments our auditors make about certain aspects of financial and service performance management – known as “the 5 management aspects”.

Figures 5 and 6 show changes in assessments of the 5 management aspects for 2003-04 compared with 2002-03, and for 2002-03 compared with 2001-02. (The data is always one year behind the year of the Annual Report.) We looked at this data in terms of net changes (that is, the number of higher assessments compared with the number of lower assessments). Overall, for the 87 entities in the 4 classes reviewed, there had been another net improvement in the assessments of the 5 management aspects from 2002-03 to 2003-04 (there were 29 higher assessments and 22 lower). While this indicated some improvement in the management of public sector entities generally, the results on a class-by-class basis varied.

Figure 5.

Figure 6.

Figure 7.

In government departments, 12 of the 205 assessments worsened, and only 7 improved. Of the 105 District Health Board assessments, 9 were higher but 7 were lower than the previous year’s results. Of the 45 Crown Research Institutes, one assessment was worse and 2 improved. However, 11 of the 68 assessments for State-owned Enterprises were higher, and only 3 were lower than those for the previous year.

Measure 6:
All funds released from the Crown Bank Account will have appropriate parliamentary approval (100% compliance)

There were no breaches during 2004-05 – all warrants issued by the Governor-General for the release of funds, and daily amounts released to departments to fund their activities, were supported by appropriations and were for lawful purposes.

Note: Changes to the Controller function, which take effect from 1 July 2005, will make this measure redundant.

Did our work maintain or improve our desired outcomes?

We consider that, because of our work in 2004-05, our desired outcomes have been maintained at existing levels:

New Zealand improved its ranking on the Transparency International Corruption Perceptions Index.
Public entities accepted more of our recommendations arising from annual audits.
A pilot study to gather feedback from our stakeholders indicated that our work is considered relevant and timely.
We produced guidance about conflicts of interest, and a report on Government publicity and advertising, which may reduce the number of enquiries we receive on these topics in future years.
Overall, the management of entities stayed at similar levels (measured through our assessments of “the 5 management aspects”).

Governance report

We have in place a sound framework for governance.³ Our framework incorporates the culture, structures, and processes for decision-making, accountability, control, and behaviour, and provides the system within which:

the Auditor-General performs his statutory functions;
the Auditor-General is accountable to Parliament for his stewardship of the resources entrusted to him;
the strategies and goals of the organisation are set, promoted and achieved;
important risks to the organisation are identified and managed; and
ethical values and behaviours and responsible decision-making are promoted, and inappropriate actions and behaviours are dealt with.

Decision-making

We reviewed our leadership model after 6 months of operation, and made some changes to ensure greater role clarity of the various leadership groups.

We established a framework for stakeholder feedback, then implemented a pilot feedback study and an organisation-wide staff survey.

Accountability

We created an evaluation framework, endorsed by the Officers of Parliament Committee, to measure the effect of our performance audits.

We aligned our organisation-wide corporate and Strategic Audit Planning processes.

Control

We made good progress in aligning the corporate policies for human resources, finance and information technology of the OAG and Audit NZ.

We reviewed our employee fraud policy, and aligned our internal independence processes.

We reviewed and published the Auditor-General’s Statement on Independence for our auditors, and continued to refine and implement our project management approach.

Behaviour

We reviewed our Code of Conduct during 2004-05, and used our staff survey to explore certain aspects of staff behaviour. The survey was one of the tools we used to measure our governance, so the results are discussed below.

Measuring governance

We continued to work on suitable measures for governance. We started with measures around the “effectiveness” of our governance framework. Specifically, in the staff survey, we sought staff perceptions on ethics, values, and clarity of performance expectations.

The staff survey questions on ethics considered:

how consistently staff apply our policies and procedures;
whether staff do all that is necessary to deliver a quality piece of work;
whether staff act with professional independence in providing advice; and
whether staff act with integrity.

The average rating for these questions, for both the OAG and Audit NZ, was 4.6 out of 6.

The survey questions on values considered:

whether staff trust their colleagues;
whether staff understand how they are expected to behave to support the organisation’s values;
whether their manager behaves in ways which support the organisation’s values;
whether senior management acts in ways which support the organisation’s values; and
whether staff are honest in their interactions.

The average rating for these questions was 4.5 out of 6.

The survey questions on performance expectations considered:

how consistently the organisation communicates its performance expectations to staff;
whether staff understand what is expected of them in their role;
whether staff receive useful feedback in how well they are performing; and
how clear goals and objectives are for staff to operate effectively in their roles.

The average rating for these questions was 4.1 out of 6.

The Audit Committee has also signalled its intention to review our governance framework during 2005-06. The Audit Committee report for 2004-05 is on page 41.

Did we maintain or improve our governance objectives?

We consider that, through our work in 2004-05, we strengthened our governance framework and made some progress on measuring and reporting on the effectiveness of our governance arrangements. We will continue to refine our measurement in this area during 2005-06.

Report of the Audit Committee for the year to 30 June 2005

Members:

Anthony N Frankham FCA, FAMINZ, FIOD (Chairman), Director, Frankham Lyne Limited

Brigid McArthur BA, LLB (Hons), Partner, Chapman Tripp, Barristers & Solicitors

Ross Tanner MA (Hons), MPA (Harvard), Director, Cranleigh Strategic Limited

Robert Buchanan LLB (Hons) (from 20 May 2005), Assistant Auditor-General, Legal

Kevin Simpkins FCA, CPFA, CA (S.A.) (to 20 May 2005), Deputy Controller and Auditor-General

The Audit Committee is an independent committee established by and reporting directly to the Auditor-General. The Committee was established in 2003.

The purpose of the Committee is to oversee:

risk management and internal control;

audit functions (internal and external) for the office;

financial and other external reporting;

the governance framework and processes;

compliance with legislation, policies and procedures.

The Committee has no management functions.

During the past year the Committee:

met on four occasions to fulfil its duties and responsibilities;

received briefings from the Auditor-General and other senior managers on key business activities of the Office, as a basis for ensuring risks facing the Office are being appropriately addressed;

reviewed the Office’s risk management framework and quarterly reports on the status of risks facing the Office;

recommended, for the Auditor-General’s endorsement, the internal audit programme for the year and monitored both the implementation of the programme and the timely implementation of endorsed recommendations;

discussed with the external auditors their audit plan for the year and findings from their audit work;

monitored the implementation of recommendations made by the external auditors;

reviewed the annual plan and annual financial statements of the Office prior to their approval by the Auditor-General, having particular regard to the accounting policies adopted, major judgmental areas, and compliance with legislation and relevant standards;

commenced a review, through the Internal Audit function, of the governance framework of the Office.

The Committee has reported to the Auditor-General on the above and other matters it has seen fit to do so. There are no outstanding or unresolved concerns which the Committee has brought to the attention of the Auditor-General.

Anthony N Frankham
Chairman for the Audit Committee

16 September 2005

Risk report

The organisation has a comprehensive framework for risk management, which was introduced in 2003-04 and integrated within our strategic and business planning.⁴ We have yet to fully apply this framework to all our management activities. In our Annual Plan 2005-06, we said we would “review the application of our risk management processes, and clarify management accountabilities for risk management” during 2005-06.

Measuring risk

In our Annual Plan 2004-05, we set out the measures we would use to assess how widely we have implemented our risk mitigation strategies, and their quality. Our results are reported below.

Strategic risk 1:
Not maintaining our credibility and reputation

In assessing this strategic risk, we considered whether there has been any real or perceived damage to the credibility or reputation of the Auditor-General, and whether our mitigation strategies relating to this risk have been effectively implemented. The measures we used and the results for 2004-05 are:

Measure: No instances where our credibility/ reputation is badly damaged or litigation action taken against the Auditor-General.
There were no instances where our credibility or reputation was badly damaged, and no litigation was taken against the Auditor-General.

Measure: Sample stakeholders’ assessment of perceptions of the organisation’s credibility and reputation.
We carried out a pilot implementation of our stakeholder feedback study. Through this, our stakeholders indicated that they continue to see the organisation as credible and reputable. We will refine this measure further as we implement the stakeholder study more fully.

Measure: Our risk mitigation strategies are substantially implemented (90% completed).
We agreed 7 more mitigation strategies for 2004-05 to enhance our existing strategies.

We fully completed or made substantial progress on 5 of those strategies. The other 2 strategies have been carried forward to 2005-06.

Strategic risk 2:
Not meeting our stakeholders’ expectations

In assessing this strategic risk, we considered whether or not our stakeholders think the organisation adds value, and is timely and relevant.

Measure: Sample stakeholder assessment of the value we add, our timeliness and our relevance.
As discussed earlier, we carried out a pilot study to gather feedback from our stakeholders. We received the following average ratings in relation to this strategic risk:

The organisation focuses on issues of importance: 4.3 out of 5
The organisation is responsive to our needs: 4.3 out of 5

Strategic risk 3:
Not maintaining and building our capability

In assessing this strategic risk, we considered the Auditor-General’s ability to attract and retain suitably qualified staff, and invest in their training. We assessed this through our capability measures – see pages 45-54.

Strategic risk 4:
Failing to successfully implement our 5-year Strategic Plan

In assessing this risk, we considered how widely we had implemented the activities set out in our Strategic Plan.

Measure: Our Strategic Plan is substantially implemented (90% completed).
We successfully implemented more than 80% of the actions arising from our strategy.⁵ However, we did not make as much progress as we would have liked in 3 areas:

innovation systems and processes;
aligning our accountability frameworks throughout the organisation; and
implementing ways to better access capacity for major inquiries.

These actions have been carried forward into our plans for 2005-06.

Our progress in all of the actions arising from our strategy is described on page 52.

Strategic risk 5:
Not maintaining our independence

In assessing this risk, we considered whether there were any failures of independence of the Auditor-General – including breaches in the work we undertake and breaches by the people working for the Auditor-General.

Measure: Our risk mitigation strategies are substantially implemented (90% completed).
We agreed 2 more mitigation strategies for 2004-05, and completed them both.

Measure: There are no failures in terms of the Auditor-General’s Statement on Independence.
During the year, several instances were identified that would have resulted in a breach of the Auditor-General’s Statement on Independence, if appropriate interventions had not been put in place. All situations were resolved to the satisfaction of the Auditor-General.

Measure: Independence Declarations for all OAG and Audit NZ staff are completed every 6 months.
We aligned our independence processes, and implemented this for the 6 months ending May 2005.

Strategic risk 6:
Serious audit failure

We considered whether we have robust professional standards, quality assurance regimes, audit methodologies, peer review and substantiation processes. We also considered whether we have suitably qualified and trained personnel, and sufficient Professional Indemnity Insurance.

Measure: Our risk mitigation strategies are substantially implemented (90% completed).
We added 5 more mitigation strategies during 2004-05.

We fully completed or made substantial progress on 3 of these strategies, and carried 2 forward to 2005-06.

Did we maintain or improve our risk management objectives?

In our view, during 2004-05 we strengthened our risk management framework and improved our measurement and reporting of risk.

During 2005-06, we will review how we apply our risk management framework, and make sure that it is fully embedded into all our management activities.

Capability report

During the past 3 years, we have attempted to provide a more complete picture of our capability. This year, we again provide:

base information – the number of staff, and the distribution of our staff by function, gender, and ethnicity;
other information on current capability – particularly related to “supply” characteristics; and
information on how we have maintained and enhanced our capability – including how much we spent on training and development, turnover levels, experience levels, sick leave taken, and staff satisfaction.

We report on the specific capability measures set out in our Annual Plan 2004-05, and our implementation of the actions required by our Strategic Plan. We also report on other capability initiatives we have put in place.

Based on this information and measurement, we make some tentative conclusions about the adequacy, quality, and effectiveness of our current capability.

Base information

The OAG increased its staff numbers by 26% between 1 July 2004 and 30 June 2005, in response to the challenges raised in our Strategic Plan. Audit NZ maintained its staff numbers at a similar level to the previous year. However, it had trouble retaining and recruiting staff. This is discussed further on page 50.

The distribution of staff by function, gender and ethnicity remained largely the same as previous years.

Figure 7
Numbers and distribution of our staff – by function, gender, and ethnicity – during the last 3 years

As at 30 June	2005	2004	2003
Staff numbers (full-time equivalents)
Office of the Auditor-General	66.2	52.4	54.5
Audit New Zealand	177.6	178.4	194.2
Total	243.8	230.8	248.7
Functional distribution
Audit/assurance	69%	65%	65%
Technical and advisory	4%	4%	7%
Corporate support	23%	27%	23%
Management	4%	4%	5%
Gender distribution
All staff
Women	48%	46%	49%
Men	52%	54%	51%
Management staff*
Women	30%	-	-
Men	70%	-	-
Ethnicity distribution
NZ European	53%	56%	62%
NZ Māori	4%	3%	3%
Pacific Islander	2%	1%	2%
Asian	14%	13%	9%
Other European	7%	8%	13%
Other ethnic groups	2%	4%	7%
Undeclared	18%	15%	4%

* This figure represents the staff reporting directly to the Auditor-General. It is not comparable to data shown in previous years’ Annual Reports.

Contracted resources

We need additional people to help with our workload at certain times of the year. In 2004-05, we seconded 25 staff from international peer organisations and from our Audit Service Providers.

In return, during the year, we provided 6 staff to other audit offices, Audit Service Providers, or government departments.

Other information

While we were, generally, able to attract applicants for operationally important vacancies, we struggled in some locations and for some technical positions. There were fewer internal promotions during 2004-05, because there were fewer vacancies at management level.

Figure 8
Applicants for operationally important vacancies, and promotions to managerial positions

Year ended 30 June	2004-05	2003-04
Graduates – Audit NZ
Number of vacancies	25	13
Number of applicants	163	113
Senior operational staff – OAG
Number of vacancies	7	Not reported
Average number of applicants for each externally advertised vacancy	11	Not reported
Senior operational staff – Audit NZ
Number of vacancies	5	Not reported
Average number of applicants for each externally advertised vacancy	39	Not reported
Internal staff promotions
Total number of internal staff promoted to management positions*	5	13

* Directors, Managers, Sector Managers, Senior Performance Auditors, and Corporate Managers.

Capability management

In 2004-05, we introduced an organisation-wide Capability (Talent) Management System to help attract, train, retain, and deploy our senior personnel.

As a result, we have been able to draw some tentative conclusions about the extent of, depth of, and challenges to, the future capability of the organisation. These were:

we have several individuals with the potential to take on more senior roles, and a very strong base of technical expertise;
there are skill gaps in leadership and innovation;
there are some risks to our organisation if we fail to retain certain people and knowledge – especially for specialist technical positions; and
we need to do more to promote understanding of, and alignment with, our strategy.

External acknowledgement

Audit NZ was named the 2005 winner of the inaugural Talent Excellence Awards. The Talent Excellence Awards are designed to acknowledge excellence in identifying and managing talent. A panel of business and human resources leaders judged:

the innovation and robustness of each organisation’s approach to identifying and managing its talent; and
the alignment within each organisation of individual expectations and organisational practice for factors such as leadership, feedback, remuneration and work/life balance.

Maintaining and enhancing our capability

Data on our staff’s experience, qualifications, and training is presented in Figure 9.

Figure 9
Staff experience, qualifications and training

		2004-05	2003-04
Experience
Average “time in job”	OAG	4.3 years	4.5 years
	Audit NZ	3.5 years	5.8 years
Tertiary qualifications
Positions requiring tertiary qualifications	OAG	76%	76%
	Audit NZ	87%	87%
% of those positions filled by staff with tertiary qualifications	OAG	96%	95%
	Audit NZ	96%	98%
Staff with post-graduate qualifications	OAG	63%	61%
Training and development
Average spent on formal training (each employee)	OAG	$2,356	$1,243
	Audit NZ	$3,699	$1,878
Average hours spent on upgrading skills (each employee)	OAG	57.3	Not reported
	Audit NZ	102	60.5*
Pass rate of staff undertaking ICANZ accreditation		100%	94%

* Last year, we mistakenly reported the average as 149 hours.

The decrease in the average “time in job” reflects the new staff recruited to the OAG, and the higher staff turnover for Audit NZ.

Training and development

During 2004-05, we doubled our investment in training and development, and sought to apply this budget more evenly throughout the year. (Historically, Audit NZ waited until the second half of the financial year to spend money on training, and the extent of training depended on business performance.) Professional development within the organisation centred on the implementation of our research and development projects: LTCCPs, the audit implications of new public sector management legislation, and NZIFRS.

In relation to personal and leadership development, we implemented:

4 workshops for senior staff, with an emphasis on emotional intelligence;
a development pool for Associate Directors, incorporating learning and experiential development opportunities;
a leadership development initiative for selected managers;
individual development plans for senior staff based on 360º feedback; the start of an 18-month programme for selected staff below manager level, to equip them for future leadership roles; and
Team Development Planning for each group.

Within the organisation, a number of senior staff also participated in local and international leadership programmes.

We continued to provide other courses, including presentation skills, media handling skills, writing skills, and health and safety.

Turnover in Audit NZ increased significantly during 2004-05, mostly within audit staff and corporate business support staff. A buoyant job market and a shortage of qualified staff were the main contributors.

There was a reduction in the average amount of sick leave taken. This reflected the increase in new staff, together with fewer individuals with long-term health issues.

Figure 10
Organisational health and staff satisfaction

		2004-05	2003-04
Organisational health
Turnover	OAG	8.0%	16.9%
	Audit NZ	34.8%	20.0%
Average sick leave taken for each employee	OAG	4.9 days	5.7 days
	Audit NZ	5.5 days	4.6 days
Staff survey results (scores out of 6)
Job satisfaction		4.5	4.4*
Organisational satisfaction		4.6	4.5*
Satisfaction with management		4.4	4.6*
Understanding of vision and purpose		4.1	4.6*

* Audit NZ only

Measuring capability

Some of our measures to assess the success of our capability strategies were discussed above. For this reason, they have not been included in the following Figure.

Figure 11
Capability measures

People – staff development, retention and use
WE MEASURED HOW WE HAVE BUILT CAPABILITY FOR THE FUTURE BY
Assessing our ongoing ability to attract, develop, and retain suitably qualified staff
MEASURES WE HAVE USED	AS AT 30 JUNE 2005
% of ready successors for key roles	From our initial capability management assessments, there is a good supply of ready successors within the organisation for key roles
EEO initiatives substantially implemented (i.e. 90%)	Substantially achieved (see page 52)
EFM initiatives substantially implemented (i.e. 90%)	Substantially achieved (see page 52)
New resources (for performance audits) substantially recruited	Achieved (see pages 5 and 62)
Audit NZ ratio of senior to junior staff hours	Benchmark established (see page 10)
Culture – changes to the way people work together
WE MEASURED HOW WE HAVE BUILT CAPABILITY FOR THE FUTURE BY
Assessing whether our staff perceive that the organisation creates an environment which supports them to be innovative and work collaboratively
MEASURES WE HAVE USED	AS AT 30 JUNE 2005
Staff assessment of the extent of innovation and collaborative working that occurs and is encouraged	From the staff survey, the average rating out of 6 for the: extent of innovation was 2.9 environment for innovation was 4.0 extent of collaboration was 3.0 environment for collaboration was 4.5
Processes and systems
WE MEASURED HOW WE HAVE BUILT CAPABILITY FOR THE FUTURE BY
Assessing how effective the organisation’s processes and systems are in supporting the work of the organisation (including the governance and accountability mechanisms)
MEASURES WE HAVE USED	AS AT 30 JUNE 2005
International peer comparators	No peer comparators were established
Strategic Plan implementation substantially achieved	80% achieved (see page 52)
Staff assessment of quality and usefulness of business processes/systems	In the staff survey, the average rating for overall perceptions of the organisation’s internal processes and systems was 4.4 out of 6

We substantially achieved most of our capability measures during 2004-05. Of interest, in relation to the new measures around culture, we saw staff rate the organisation highly in creating an environment which encouraged both innovation and collaboration, but rate the extent to which they thought innovation and collaboration were actually happening much lower. We are exploring these differences with staff.

Equal Employment Opportunities (EEO) and Effectiveness for Māori (EFM)

During the year, we reviewed our Equal Employment Opportunity (EEO) and Effectiveness for Māori (EFM) programmes. We wrote our draft EEO programme for 2005-2007, and updated our EFM programme.

We continued to implement our existing EEO and EFM programmes. The main initiatives in 2004-05 were:

we piloted an on-line, self-learning Te Reo Māori course;
we prepared a pilot series of seminars to raise staff awareness of aspects of tikanga Māori and kaupapa Māori, including basic language skills, basic understanding of the Treaty of Waitangi, and general cultural awareness (the pilot seminars will be presented in 2005-06);
we broadened our recruitment advertising, and ensured that the language in our advertisements was appropriate for diverse audiences;
we learned 2 waiata, and welcomed our international counterparts to the 19th Commonwealth Auditors-General Conference with a pōwhiri; and
we continued to consult with Te Puni Kōkiri on proposals for performance audits. We note that this consultation is becoming increasingly difficult for Te Puni Kōkiri, given its other work priorities. We intend to identify an alternative solution.

Strategic Plan implementation

In our Annual Plan 2004-05, we set out our intentions for implementing our Strategic Plan. We said we would:

embed our new governance and leadership structure;
align our accountability frameworks throughout the organisation;
implement a “project office” approach;
develop strategies, processes, and systems for turning ideas into action;
put more resources into our Performance Audit Group and implement ways to better access capacity for inquiries;
pilot a revision of our Strategic Audit Planning process;
continue to streamline our corporate support strategies and processes;
fully implement the “Associate Director” pilot in Audit NZ;
continue to implement our EEO and EFM initiatives;
review our capability development model for senior staff; and
implement a project to maximise our sector efforts.

We have completed, or made significant progress in, most of these.

Other capability initiatives

Through our internal business planning process, we identified a number of other capability initiatives.

Communications Strategy

We made good progress in implementing the projects under our Communications Strategy. Our achievements included:

creating a shared intranet for the OAG and Audit NZ. This has improved communication between our 2 business units and provided a common reference point for internal information about the organisation and our strategy;
reviewing our publications approach and implementing a new publishing strategy;
starting to improve the accessibility and usability of the OAG’s website;
drafting revised policies for media relations, crisis management, and publishing; and
documenting our existing internal communication mechanisms.

Information Systems and Technology Plan

We wrote an Information Systems and Technology Plan during 2004. Based on this Plan, we:

improved the e-mail and scheduling connections between the premises of the OAG and Audit NZ; and
started a project to provide online the database we use to record and report information from Audit Service Providers on the conduct and outcomes of annual audits.

We started a review to make sure we have the systems, tools, and capability to support our internal and external accountability

measures. We finished a user-needs analysis, and called for registrations of interest in the implementation of a national resourcing system.

Sustainable Development

We are committed to practices that enhance sustainability. In 2004-05 we:

agreed an “Environmental Statement” about our commitment to sustainability, and agreed a Sustainability Plan for 2004-05;
changed the design and printing of the Auditor-General’s reports, based on the “green publishing guidelines” produced by the Ministry for the Environment (we were a case study for the Ministry, and talked to others about our changes) – we will go further in 2005-06, and redesign all our publications with sustainability in mind;
made double-sided photocopying and printing the default setting for our copiers and printers;
conducted another waste audit at the OAG, and reduced our waste by 1.3 tonnes since our audit in 2003 (or 45% for each person in the OAG);
started a waste audit at Audit NZ’s Wellington premises;
set benchmarks for energy efficiency within the organisation;
promoted the use of video conferencing facilities instead of travel; and
used the Ministry for the Environment’s sustainability guidelines when we refurbished a number of Audit NZ offices.

Did we maintain or improve our capability outcomes?

As we did last year, we have formed some tentative conclusions based on the information and measures provided on the previous pages about the adequacy, quality, and effectiveness of our current capability.

Adequate staff numbers

During 2004-05, the OAG has increased staff numbers in response to the issues identified in our Strategic Plan. Between April and June 2005, staff numbers in Audit NZ returned to levels similar to those at 30 June 2004 (even though, for the 6 months to 31 March, staff numbers had fallen by 11%). It was difficult to attract suitably qualified staff in tight labour market conditions.

We asked, as part of the staff survey, whether people felt there were enough skilled people to do the work. Audit NZ staff rated this as 3.7 out of 6, while OAG staff rated this more positively – 4.2 out of 6. Audit NZ’s result reflects the staff shortages described above.

In our view, we generally have, or have access to, the staff we need to meet our current and future needs. However, we continue to have trouble recruiting suitably qualified staff in some locations, and for some specialist positions.

Quality of our staff

Our average spending for each employee on training and development has increased by 50%. However, we have acknowledged that we need to do more, and this will be our emphasis for 2005-06.

In our staff survey, 78% of the staff who responded said they are committed to the organisation and intend to remain, and 75% indicated that they are happy with their job.

In our view, during 2004-05 we have strengthened the quality of our staff.

Effectiveness of our staff and systems

The results from our pilot stakeholder study, and Audit NZ’s client survey, indicated continuing high levels of satisfaction with the expertise of our senior staff and the quality of our relationships with our stakeholders. However, public entities continue to question the depth of sector and business knowledge of junior Audit NZ staff.

In our staff survey, we asked about the perceptions of staff on the availability and usefulness of our internal systems and processes, and access to the information they need to do their jobs. Staff rated this on average as 4.4 out of 6.

Therefore, we consider that we have at least maintained the effectiveness of our staff and systems.

Capability outcomes

In conclusion, we consider that, through our implementation of the Strategic Plan and through our additional capability initiatives, we have enhanced the capability of our people and systems.

International financial reporting standards

The Accounting Standards Review Board announced in December 2002 that reporting entities must adopt NZ International Financial Reporting Standards (NZIFRS) for periods beginning after 1 January 2007, with earlier adoption optional. The Minister of Finance announced in 2003 that the Crown will first adopt NZIFRS for its financial year beginning 1 July 2007.

Treasury is managing the adoption of NZIFRS for the consolidated financial statements of the Government reporting entity. Individual entities included within the consolidated financial statements of the Government reporting entity are responsible for ensuring their own NZIFRS preparedness. Treasury provides guidance to these entities and facilitates implementation on common issues.

The phases for implementing NZIFRS for the Crown financial statements are:

Submissions on standards – reviewing and commenting on NZIFRS exposure drafts to ensure they are applicable to the public sector. While a significant amount of this phase’s work has been completed, exposure drafts continue to be issued for revisions and additions to approved NZIFRS.
Policy choice – developing NZIFRS accounting policies for the Crown financial statements and implementation guidance. Policy development is nearly complete with draft NZIFRS policies recently provided to entities for consultation. Developing implementation guidance will be ongoing as issues arise in implementing NZIFRS.
Systems and transition – updating disclosures and systems to capture the policy changes. These systems and transition tasks are currently underway. The intention is to capture comparative NZIFRS data throughout the 2006-07 financial year in parallel with current reporting requirements.
Full adoption – refining forecasting policies under NZIFRS, preparing the 2007 Budget on an NZIFRS basis, and publishing NZIFRS financial reports for the Crown. The first interim report will be for the period ending 30 September 2007. The first audited financial statements will be for the year ending 30 June 2008.

The potential areas of impact from adoption of NZIFRS may change materially as implementation unfolds.

As part of the Government reporting entity, the office is adopting the Treasury timetable to implement NZIFRS and we expect little impact upon our financial statements.

page top