Part 2: Our proposed annual work programme

Annual plan 2006-07.

Our work

The majority of our work (about 80%) relates to the conduct of annual audits of the financial reports of public entities. About 4000 audits are carried out each year. This work is non-discretionary. The Auditor-General is also required to perform the Controller function and an appropriation audit in respect of each government department.

The rest of our work involves:

  • advice to Parliament;
  • inquiries;
  • approvals under the Local Authorities (Members’ Interests) Act 1968;
  • advice and liaison;
  • working with the accounting and auditing profession;
  • wider assurance work;
  • performance audits and other studies; and
  • international liaison and involvement.

Although in some respects this work is discretionary, much of it is demand-driven. This means that the Auditor-General must decide how to best use the funding available to meet demand. This is particularly important for inquiries because the volume and complexity of requests for inquiries has increased significantly in recent years. In some cases, the Auditor-General will decide not to carry out an inquiry.

Deciding the annual work programme

The Auditor-General’s proposed annual work programme relates primarily to performance audits and other studies, which tend to be major audits covering issues of effectiveness and efficiency.

In deciding the annual work programme, the Auditor-General considers that – regardless of any other work he might do – he has a responsibility to Parliament and the public to regularly provide assurance about the activities of public entities that are large and complex, and/or where it is difficult to assess their performance.

Core areas of interest for the Auditor-General include:

  • major public investment or liability management;
  • major public revenue management or generation;
  • major asset management or infrastructure spending or management;
  • major expenditure (including service delivery expenditure); and
  • local government.

On the basis of an assessment of the size and complexity of public entities, and the inherent significance of the associated risks, the Auditor-General has decided that he will regularly perform some form of assurance work (in addition to annual audits) in the following public entities or sectors:

Areas of major public investment and liability management

  • the Accident Compensation Corporation;
  • the New Zealand Debt Management Office;
  • the Earthquake Commission;
  • the Government Superannuation Fund Authority;
  • the New Zealand Superannuation Fund; and
  • the Student Loan Scheme.

Areas of major public revenue management or generation

  • the Inland Revenue Department; and
  • the New Zealand Customs Service.

Areas of major asset management or infrastructure spending and management

  • aircraft (non-military);
  • conservation;
  • corrections;
  • defence;
  • education;
  • energy;
  • health;
  • highways;
  • housing; and
  • rail.

Areas of major expenditure (including service delivery expenditure)

  • health;
  • education; and
  • social welfare.

Local government

The Auditor-General will also regularly perform similar assurance work in the local government sector, which falls into all 4 of the above areas.

Other areas of interest

In addition to these core areas of interest, the Auditor-General’s annual work programme is determined by using:

  • strategic areas of focus; and
  • entity- or sector-specific areas of focus.

Strategic areas of focus

The Auditor-General intends to establish an integrated programme of assurance work for the next 3 to 5 years on up to 3 significant and “hard” issues/risks affecting the public sector. These are likely to be studies that consider multiple agencies and/or central and local government collaboration. They may also include areas where the Auditor-General wants to “lift the bar” in terms of public sector performance, or may be emerging areas where the Auditor-General wants to take a lead.

During 2006-07, the Auditor-General proposes to:

  • identify specific topic(s);
  • put in place detailed project management plans, which will include impact evaluation assessments; and
  • start assurance work.

Entity- or sector-specific areas of focus

Our environmental scanning and Strategic Audit Planning processes (see "Our Strategic Audit Planning process", pages 24 to 26), identify areas within or across entities or sectors that warrant further examination by the Auditor-General.

Our Strategic Audit Planning process

We undertake a comprehensive Strategic Audit Planning process to decide our proposed annual work programme.

Sector groupings

To assist in the management of our work, we sort public entities by sector, within 2 groups – Parliamentary and Local Government. Within each group, public entities are categorised along the same subject lines as Parliamentary Select Committees. We give our Sector Managers responsibility for monitoring all significant activities within their assigned sectors, and for consulting with relevant stakeholders. Audit New Zealand and some of the other audit service providers who are contracted by the Auditor-General also have sector specialists.

The Strategic Audit Planning cycle

We carry out our Strategic Audit Planning process twice a year – the first time to build a deep understanding of the key issues and risks in our environment, and the second to validate and/or update our proposed work programme before issuing it for consultation.

The process incorporates 5 key actions:

  • environmental analysis;
  • consultation;
  • identification of major areas of audit interest;
  • development of assurance responses; and
  • prioritisation.

These actions are iterative and may occur more than once during the planning cycle (refer to the diagram on the following page). Each action is described more fully on the following pages.

Diagram showing relationship of consultation during the 5 key actions of the Strategic Audit Planning cycle.

Environmental analysis

Each year, we review changes in our stakeholders’ needs, the accounting and auditing profession, and the legislative and operating environments of public entities. Our Sector Managers also survey current and forecast activities of all public entities within each sector, and identify what other relevant work is being, or has been, done by the Office and/or other agencies.


At a number of stages throughout the Strategic Audit Planning process, we seek input from others, including:

  • members of Parliament;
  • Audit New Zealand;
  • other audit service providers, including KPMG, PricewaterhouseCoopers, Deloitte, and Ernst & Young;
  • central agencies (the State Services Commission, the Treasury, and the Department of the Prime Minister and Cabinet); and
  • our Local Government Advisory Group.

Feedback from these sources is important to ensure that our work remains relevant and is focussed on the right issues. We review, and may amend, our Strategic Audit Planning process or proposed work programme based on this feedback.

Identification of major areas of audit interest

This year, 2 main inputs have been used to decide the major areas of audit interest that require a response from the Auditor-General.

The first was the in-depth consideration of public entities and sectors by our Sector Managers. The second was the direct guidance of the Auditor-General in setting a high-level agenda to ensure that the Strategic Audit Planning process addressed key issues and risks.

Development of assurance interventions

Once preliminary views have been established about the major areas of audit interest, we plan possible assurance interventions.

As identified in our Strategic Plan, we want to use the full range of assurance interventions to address issues or risks in the major areas of audit interest. This may include:

  • additional work as part of the annual audit;
  • performance audits or studies;
  • “best practice” advice;
  • articles in our reports on the annual audits of central and local government;
  • research and development; and
  • other scoping work.


In order to assign priorities to the assurance interventions that emerge throughout the Strategic Audit Planning process, we consider:

  • legislative audit model implications – the severity of the issue in respect of the elements of the Auditor-General’s legislative audit model;
  • public benefit – the benefit to the public from addressing the issue or carrying out the assurance intervention;
  • performance improvement – the extent to which the performance of the public entity or sector could be improved by addressing the issue or carrying out an assurance intervention;
  • significance – the significance of the issue or assurance intervention (from the aspect of materiality as well as public profile); and
  • role fit – the extent to which the issue or assurance intervention relates to the Auditor-General’s role.

Proposed work programme

After we set priorities, we consider the most appropriate phasing and sequencing of assurance interventions, which usually take place in a 3-year period. From this, we can decide our annual work programme.

The Auditor-General’s proposed work programme for 2006-07 has been determined as described on the previous pages. For context, we also list work due to be completed and work about to start in the remainder of 2005-06.

Due to be completed by 30 June 2006

  • Audit of a selected grants programme – Foundation for Research, Science and Technology
  • Department of Conservation – land holding and purchasing policies
  • Economic development funding – West Coast
  • E-government – review against progress and targets
  • Expectations for managing public funding to non-government organisations
  • Hazardous waste management
  • Health funding package
  • Heritage collections
  • Housing New Zealand Corporation – acquisitions management
  • Local government – codes of conduct
  • Ministry of Education – school property portfolio
  • Sea container surveillance

Due to start by 30 June 2006

  • Effectiveness and efficiency of quality assurance arrangements in the tertiary education sector
  • Inland Revenue Department – taxpayer audit follow-up
  • Local government – decision making and consultation
  • Ministry of Defence – major acquisitions projects
  • Ministry of Social Development – performance of the Work and Income contact centre
  • Procurement guidelines update
  • Rates postponement - reverse mortgages
  • Resource Management Act 1991 – consultation in relation to major Crown capital developments
  • Expectations in relation to sensitive expenditure

Proposed to start in 2006-07

  • Annual audit of a selected grants programme – Te Puni Kōkiri
  • Audit of selected agencies’ management of public funding to non-government organisations
  • Collaboration in roading
  • Combating immigration fraud
  • Land information management systems
  • Local government – asset management, business planning, and risk integration
  • Management of diabetes
  • Ministry of Foreign Affairs and Trade – NZAID
  • Ministry of Social Development – benefit fraud
  • Ministry of Health – review of the Ministry’s evaluation of the Primary Health Care Strategy implementation
  • Monitoring non-casino gambling
  • New Zealand Debt Management Office
  • New Zealand Customs Service – revenue collection
  • Revitalisation of Te Reo Māori
  • Sustainable development – implementation of programme of action
  • Waste management

Six of these proposed performance audits and studies have not been described in our previous Annual Plans. A brief background to each is provided below.

Background to proposed performance audits and studies not previously described

Collaboration in roading

The Land Transport Management Act 2004 provides scope for shared services and public-private partnerships. We propose to review some early forerunners of public-private partnerships for learning that may assist other initiatives that could emerge.

We propose a performance audit to examine the effectiveness of collaborative approaches (between local authorities and Transit New Zealand) to provide roading.

Land information management systems

Land Information Memoranda (LIMs) are the main method for property owners to get information about risks that might affect their property. Anecdotally, there have been concerns about the approaches to, and the quality of, recording land information on LIMs. We consider that there is potential for a review based on the Society of Local Government Managers’ legislative compliance modules and relevant case law.

We propose a performance audit to review the systems, policies, and procedures in relation to the recording of land information in LIMs.

Monitoring non-casino gambling

Aspects of the Gambling Act 2003 continue to be implemented. The Act resulted in significant changes to the non-casino gambling industry, including how the monitoring of gaming machines is to be carried out (a subject of concern in the past). We have examined this area previously, and a further audit appears justified to examine implementation of the Act by the Department of Internal Affairs.

We propose a performance audit to examine the effectiveness of the systems, policies, and procedures that are in place to ensure compliance with the Act.

Ministry of Social Development – benefit fraud

The Ministry of Social Development is forecasting to pay out more than $12 billion in benefits during 2005-06. It is also forecasting to spend more than $31 million on benefit control to prevent, detect, deter, and penalise benefit fraud in 2005-06. The risk is that benefit control efforts are ineffective, not optimally focussed, or insufficient to prevent substantial losses through fraud.

We propose a performance audit to examine the systems, policies, and procedures used by the Ministry. Parliament’s Social Services Committee will be offered a briefing on the outcomes of the audit.

New Zealand Customs Service – revenue collection

The New Zealand Customs Service expects to collect $8.2 billion in revenue in 2006-07 through customs duties, GST on imports, and excise on alcoholic beverages, tobacco, and petroleum products. There is a risk that, if Customs does not have adequate controls and systems in place, less revenue will be collected than expected. There is also a risk that Customs is not collecting all of the revenue that is due.

We propose a performance audit to examine the controls and systems in place for revenue collection. Parliament’s Foreign Affairs, Defence and Trade Committee will be offered a briefing on the outcomes of the audit.

Waste management

The Local Government Act 2002 requires local authorities to adopt a waste management plan. Concerns have been raised about the usefulness of these plans. The life cycle management of waste is a key issue for environmental sustainability, and also has major financial impacts for local authorities. Parliament’s Local Government and Environment Committee has had a general interest in waste management policies and has previously asked us to review the policies. Our review of one council’s Long-term Financial Strategy showed potential for council policies to be disconnected in this area – such as for “zero waste” versus the content of plans to give effect to such policies.

We propose a performance audit to examine the effect of waste management plans, possibly taking a case study approach and considering some local authorities with zero waste policies.

Proposed research and development programme

In our Strategic Plan, we undertook to include our proposed research and development programme as part of our Annual Plan each year.

For 2006-07, we will continue our ongoing research and development in relation to NZ IFRS. We will also continue to give consideration to the audit implications arising from general guidance issued by the Office, for example, our work on expectations relating to sensitive expenditure, and the management of public funding to non-government organisations.

In addition, we propose to start work on:

  • the 5 management aspects;
  • enhancements to the annual audit; and
  • the evaluation of local authorities’ responses to Local Government Act planning and reporting requirements.

Five management aspects

In the course of carrying out annual audits of major public entities, our auditors make assessments of how public entities are performing in respect of 5 aspects of financial and service performance management. Select Committees place high value on our assessments of the 5 management aspects.

We need to refresh our assessment of the 5 management aspects, and consider the possibility of applying them in other sectors.

We propose to carry out a review of the 5 management aspects, and to develop the audit approach and guidance for auditors for our revised assessment process.

Enhanced annual audits

Our Strategic Plan sets out the Auditor-General’s intention that we extend our work in the annual audit in areas of waste, probity, governance, and to some extent, accountability.

We propose to review the current breadth of application of the Legislative Audit Model, and as a result to initiate practical audit approaches to areas identified as potentially requiring strengthening.

Evaluation of local authorities’ responses to Local Government Act planning and reporting requirements

We intend to evaluate our LTCCP audit methodology at the completion of the 2006 LTCCP audits. We also intend to report to Parliament on our observations and learning.

In addition, the Local Government Act 2002 requires a review to be undertaken of the Act as soon as possible after the 2007 triennial election. We expect our advice to be sought as part of this review. In preparation for that, we intend to start planning and information gathering, with an initial emphasis on the specific requirements affecting and of interest to the Office.

Feedback from Parliamentary consultation

Under section 36(1) of the Public Audit Act 2001, our proposed work programme is subject to Parliamentary consultation. This is an important way in which the Auditor-General can continue to ensure that his work remains relevant and responsive.

We sought feedback on 2 occasions — once on a preliminary early draft and again on the statutory Draft Annual Plan.

This feedback:

  • mainly supported the approach the Auditor-General has taken to determining his work programme, and
  • gave us guidance as to the scope and relative emphasis we should place on one or 2 key studies.

We thank Parliament for this feedback, and will ensure that it is incorporated into our scoping of the respective studies.

Having regard to the requirements of section 36(3) of the Public Audit Act, we acknowledge that the Finance and Expenditure Committee provided a written response to the statutory Draft Annual Plan, and note that neither the Speaker nor any committee of the House requested any change to our work programme priorities.

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