Part 3: Statement of forecast service performance
Our output classes
The outputs within our three output classes are:
- auditing all public entities;
- providing advice to Parliament and others, and
- performing the Controller function; and carrying out performance audits and inquiries.
Output class: Provision of audit and assurance services
This output class relates to the Auditor-General’s statutory duty to carry out annual audits of the financial reports, and in some cases performance information, of about 4000 public entities. It also includes other assurance services provided to those entities. The output class involves the following activities:
- annual audits;
- auditor appointments and fee monitoring of annual audits; and
- quality assurance of annual audits.
The annual audits account for about 80% of our total budgeted expenditure.
Audit New Zealand and private sector auditing firms carry out annual audits and provide other assurance services on behalf of the Auditor-General. The audits and other services are funded mainly by fees paid by the public entities.
Annual audits
There are two main products from an annual audit:
- The audit report is addressed to readers of the financial statements and performance information. It provides the auditor’s independent opinion on whether the financial statements and performance information fairly reflect the public entity’s position. In cases where the financial statements fairly reflect the public entity’s financial performance and service position and, where applicable, performance information, the auditor will issue an audit report with an unqualified opinion. However, where the auditor identifies a material1 error or omission in the financial statements or performance information, the auditor will issue an audit report with a qualified opinion (which we refer to as a non-standard opinion).
- The management report is addressed to the governing bodies and management of public entities. It sets out any significant issues identified by the auditor during the audit. The report provides recommendations for improving the public entity’s controls, systems, and processes.
Where public entities are subject to financial review by select committees, we report the results of the annual audits to responsible Ministers and select committees. This includes providing a grading for entities, based on our assessment of their management control environment, financial and service performance systems, and controls.
Auditor appointments and fee monitoring of annual audits
The Auditor-General appoints auditors to carry out the annual audits of public entities. Auditors are appointed from a pool of audit service providers that includes Audit New Zealand and private sector auditing firms, ranging from the four major chartered accountancy firms to sole practitioners. Most audits are allocated directly to an auditor, but a few auditors are appointed to an audit after a competitive tender.
Because we mainly use an allocation approach, we monitor audit fees at the point of negotiation and provide a comparative analysis to help resolve any concerns about proposed audit fees. Our objective is to ensure that audit fees are fair to the public entities subject to audit, and provide a fair return to the auditors for the work required by them to meet the Auditor-General’s auditing standards.
Quality assurance of annual audits
Because the Auditor-General is responsible for auditing all public entities, it is important that we ensure that audits are performed effectively and efficiently. We carry out quality assurance reviews of auditors to ensure that they have complied with the relevant professional accounting and auditing standards, as well as the Auditor-General’s own published auditing standards.
We aim to review the performance of each of our appointed auditors at least once every three years. If we identify any concerns, we carry out more frequent followup reviews.
Measuring our performance for output class: Provision of audit and assurance services
| Main measures and standards of Impacts, outcomes, and objectives |
|---|
| The number of public entities’ audited financial reports issued within the statutory timeframe is improved (or at least maintained), measured against the previous two years. |
| The number of public entities’ audited financial reports containing qualified opinions is reduced (or at least maintained), measured against the previous two years. |
| Public entities’ acceptance of Audit New Zealand’s management letter recommendations is improved (or at least maintained), measured against the previous two years. |
| Central government entities’ management control environment, financial information and service performance information systems, and controls** are improved (or at least maintained), measured against the previous two years. |
* Audits may not have been completed for several different reasons, including the entity has not produced financial statements for audit, the audit of the previous year’s financial statements has not been completed (and must be audited first), there are delays on the part of the entity in responding to audit queries, the audit is under way but the financial statements have not been available to us for more than 30 days, and the audit is complete and waiting for the entity’s Board to adopt the financial statements.
** Benchmark data will be collected in 2007 for our first assessment of central government entities’ management control environment and financial systems and controls aspects. We will collect benchmark data in 2008 for our assessment of the entities’ service performance systems and controls.
| Measures and forecast standards of output delivery |
|---|
| Less than 10% of the outstanding audit reports at 30 June 2008 are because of inaction on our part. |
| All management reports are issued within six weeks of issuing the audit report. |
| Audit New Zealand’s client satisfaction survey results show that, overall, 75% of respondents are satisfied with the quality of Audit New Zealand’s work (including the expertise of staff and the quality of the entities’ relationships with Audit New Zealand). |
| Quality assurance reviews for all appointed auditors are completed during a three-year period. Of the auditors reviewed in any given year, 95% achieve a result of “satisfactory” or better.* |
| An annual independent review of our processes confirms the probity and objectivity of the methods and systems we use to allocate and tender audits, and monitor the reasonableness of audit fees. § |
| The Officers of Parliament Committee accepts any significant proposals for an appropriation increase in audit fees and expenses. |
* There are five levels of quality assurance ratings, assessed using the reviewers’ overall judgement of the quality of the audit work carried out. The five levels are “excellent”, “very good”, “good”, “satisfactory”, and “requires improvement”. We will identify how many auditors have not achieved a “satisfactory” rating or better, and describe the actions we intend to carry out to address those with a rating below “satisfactory”.
§ We will include in our annual report a copy of the independent reviewer’s report, and provide an explanation of our performance.
The Output Class Vote estimate for the Provision of Audit and Assurance Services output class in 2007/08 is $54.132 million.
Output class: Parliamentary services
This output class includes two main activities:
- advice and assistance – to select committees and other stakeholders; and
- Controller function – carrying out the Controller function.
Advice and assistance
Because of our annual audit, performance audit, and inquiry work, the Auditor-General has a broad overview of public entities both individually and throughout sectors. Through our services to Parliament, we provide advice and assistance to select committees, Ministers, and individual members of Parliament, as well as to central agencies and other public sector representative groups, to assist them in their work to improve the performance and accountability of public entities.
The main ways in which this advice and assistance occurs is through:
- reports and advice to select committees to assist their financial reviews of government departments and Officers of Parliament, State-owned enterprises, and Crown entities;
- reports and advice to select committees to assist their examination of the Estimates of Appropriations; and
- reports to responsible Ministers on the results of the annual audits.
Each year, we prepare 80 to 90 financial review reports, 40 to 50 Estimates of Appropriations examination reports, and 120 to 130 reports to responsible Ministers.
We also provide advice and assistance through:
- reports to Parliament and other constituencies on matters arising from our annual audits (with at least two reports tabled in Parliament each year);
- responding to requests and participating in working parties on matters related to financial management and accountability with other stakeholders, including government departments, central agencies, local authorities, professional bodies, sector organisations, and other public entities;
- working with other Auditors-General to encourage, promote, and advance cooperation among members in the field of public audit. This includes our roles as Secretariat of the South Pacific Association of Supreme Audit Institutions (SPASAI), membership of various committees of the International Organisation of Supreme Audit Institutions (INTOSAI), and acting as executing agent for the Pacific Regional Audit Initiative (which is funded by the Asian Development Bank, with co-financing from the Japan Special Fund and the Government of Australia).
Measuring our performance for output class: Parliamentary services (advice and assistance)
| Main measures and standards of impacts, outcomes, and objectives |
|---|
| Select committees confirm that our advice assists them in Estimates of Appropriation and financial review examinations.* |
* These measures are assessed through our Stakeholder Survey. Appendix 3 provides further information about the method used for this survey.
| Measures and forecast standards of output delivery |
|---|
| Reports and advice are given to select committees and Ministers at least two days before an examination, unless otherwise agreed. |
| An internal review of a sample of financial review, Estimates, and Ministerial reports confirms that they meet the relevant standards and procedures, including that reports are consistent in their framework and approach and are peer reviewed in draft. |
| At least 85% of select committee members we survey rate the quality and usefulness of the advice they receive from us as 4 or better on a scale of 1 to 5.* |
| At least 85% of other stakeholders we survey rate the relevance and usefulness of the advice they receive from us as 4 or better on a scale of 1 to 5.* |
* These measures are assessed through our Stakeholder Survey. Appendix 3 provides further information about the method used for this survey.
Controller function
The Controller function of the Controller and Auditor-General provides independent assurance to Parliament that expenses and capital expenditure of departments and Offices of Parliament have been incurred for purposes that are lawful and within the scope, amount, and period of the appropriation or other authority.
The Office of the Auditor-General and appointed auditors carry out standard procedures to give effect to the Controller function in keeping with the Auditor- General’s auditing standards and the Memorandum of Understanding with the Treasury. This involves reviewing the monthly reports provided by the Treasury, and advising the Treasury of any issues arising and the action to be taken.
Each year, we report to Parliament on the significant issues arising from the operation of the Controller function.
Measuring our performance for output class: Parliamentary services (Controller function)
| Main measures and standards of impacts, outcomes, and objectives |
|---|
| Expenses and capital expenditure of departments and Offices of Parliament are incurred for purposes that are lawful and within the scope, amount, and period of the appropriation or other authority. Where there is a breach or suspected breach, actions are taken in accordance with the Auditor-General’s powers and auditing standards, and the Memorandum of Understanding with the Treasury. |
| Measures and forecast standards of output delivery |
|---|
| Monthly statements provided by the Treasury are reviewed for the period September to June inclusive. Advice of issues arising and action to be taken is provided to the Treasury and appointed auditors within five working days of receipt of the statement. |
| Internal quality assurance is undertaken to gain assurance that our policies, procedures, and standards in relation to the Controller function have been applied appropriately. |
The Vote estimate for the Parliamentary services output class in 2007/08 is $3.034 million.
Output class: Performance audits and inquiries
This output class includes two main activities:
- performance audits – reports to Parliament and other constituencies on matters arising from performance audits and special studies; and
- inquiries – undertaking and reporting on inquiries relating to central and local government entities.
Performance audits
A performance audit is a significant and in-depth audit covering issues of effectiveness and efficiency. Performance audits provide assurance about specific issues or programmes and their management by the relevant public entity or entities. We also publish good practice guidance on topical issues of public sector accountability and performance.
To select performance audits and studies, each year we undertake a process of environmental scanning, identification of issues and risk assessment, and assurance response identification, to help determine how we can use our discretionary resources to best effect.
In deciding the discretionary 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 (focusing on the New Zealand Debt Management Office, Accident Compensation Corporation, New Zealand Superannuation Fund, Government Superannuation Fund, Earthquake Commission, and Student Loans Scheme);
- major public revenue management or generation (focusing on the Inland Revenue Department and New Zealand Customs Service);
- major asset management or infrastructure spending or management (focusing on health, correctional facilities, education, defence, conservation, transport, housing, and energy); and
- major expenditure including service delivery expenditure (focusing on health, education, and social security and welfare).
The Auditor-General will also regularly perform similar work in the local government sector.
We also identify areas within or throughout entities or sectors that warrant further examination. To assign priorities to these assurance interventions, we consider the:
- severity and significance of the issue;
- benefit to the public;
- extent to which the performance of the public entity or sector could be improved; and
- fit with the Auditor-General’s role and mandate.
We consult with Parliament and other stakeholders on our draft annual plan (and in particular our proposed discretionary work programme) to ensure that stakeholders agree we are addressing the issues of greatest relevance.
Our proposed performance audit work programme for 2007/08 is in Appendix 1.
Because we assess the undertaking of activities by entities and make recommendations for improvement, it is important that our performance audits are conducted in keeping with sound audit methodology, and that the undertaking and reporting of audit work is effectively managed. We maintain a performance audit methodology, and use project management disciplines. Independent reviews of the quality and reasonableness of a sample of our reports are also undertaken each year.
Measuring our performance for output class: Performance audits and inquiries (performance audits)
| Main measures and standards of impacts, outcomes, and objectives |
|---|
| Entities accept or respond to the recommendations made in our performance audits, as assessed by internal review of three reports of performance audits published in the previous year and selected by our independent Audit and Risk Management Committee. The results of these reviews are presented to the Officers of Parliament Committee. |
| Measures and forecast standards of output delivery |
|---|
| We complete 19 to 21 reports on matters arising from performance audits and special studies, and inquiries.* |
| Select committees and other stakeholders are satisfied with the proposed work programme of performance audits (as indicated by feedback on our draft work programme). |
| At least 85% of the stakeholders that we survey rate the quality and usefulness of performance audit reports (relevant to their sector or interest) as 4 or better on a scale of 1 to 5.** |
| Our performance audit methodology reflects good practice for undertaking such audits, as assessed every second year by the National Audit Office of Australia. The next review is scheduled for 2008/09. |
| Each year, independent reviews of two performance audits are undertaken. These reviews confirm the quality of these reports in terms of the presentation of administrative and management context, report structure, presentation, and format (including use of graphics and statistics), and the reasonableness of the methodology used and the resulting conclusions and recommendations. § |
| Internal quality assurance reviews on selected performance audit reports confirm that reports are prepared in keeping with the performance audit methodology. §§ |
* It is not always possible for us to complete the full range of work that we propose. This is because entities may have initiated their own internal or independent reviews, or are undergoing legislative or structural change; detailed project development shows that our initial proposal needs to be amended; and/or other events happen that change the Auditor-General’s priorities.
** These measures are assessed through our Stakeholder Survey. Appendix 3 provides further information about the method used for this survey.
§ An independent Audit and Risk Management Committee selects the two performance audit reports to be externally reviewed.
§§ An independent Audit and Risk Management Committee selects the performance audits to be internally reviewed.
Inquiries
The Auditor-General has the discretion to inquire into a public entity’s use of resources. Inquiries can be undertaken at the Auditor-General’s own initiative, or when correspondence from taxpayers, ratepayers, or members of Parliament draws his attention to potential issues. A few such issues lead to major inquiries. We also administer the Local Authorities (Members’ Interests) Act 1968, which governs the financial interests of members of local authorities.
Each year we usually receive:
- 200 to 300 requests for inquiries from taxpayers, ratepayers, and members of Parliament; and
- 50 to 100 enquiries under the Local Authorities (Members’ Interests) Act.
Our inquiries manual establishes the process for, and priority for dealing with, requests for inquiries and for undertaking inquiries.
We carefully consider each request to determine the most appropriate manner in which to proceed. Factors in the decision include whether the Auditor-General is the appropriate authority to consider the issues, whether we have the resources to do so, and the seriousness of the issues raised. We often undertake a considerable amount of preliminary work, such as reviewing documents and talking with the public entity, when deciding how to proceed with a request.
Where correspondence does not raise issues that warrant an inquiry, we:
- advise the correspondent of our decision not to undertake an inquiry, and the reasons for our decision; and
- in some instances, advise the public entity of the matter.
Depending on the seriousness of the issues raised, we classify the inquiries undertaken into three categories – routine, sensitive, and major. A routine inquiry is one that involves straight-forward issues, can often be undertaken through correspondence with the public entity, and does not usually result in a published report. Sensitive and major inquiries involve more complex issues and arrangements, may involve us formally interviewing people, and may be reported publicly.
Measuring our performance for output class: Performance audits and inquiries (inquiries)
| Main measures and standards of impacts, outcomes, and objectives |
|---|
| Entities take action in response to concerns identified in inquiry reports, as assessed by follow up on a sample of sensitive and major inquiries undertaken in the previous year. |
| Measures and forecast standards of output delivery |
|---|
| Our findings on inquiries are reported to the relevant parties within three months for 80% of “routine” inquiries, within six months for 80% of “sensitive” inquiries, and within 12 months for 80% of “major” inquiries. |
| For inquiries under the Local Authorities (Members’ Interests) Act 1968, we complete 80% within 30 working days. |
| Responses to requests for inquiries and our administering of the Local Authorities (Members’ Interests) Act 1968 requests are undertaken in accordance with relevant policies, procedures, and standards as confirmed by internal quality assurance review. |
The Vote estimate for the Performance audits and inquiries output class in 2007/08 is $6.415 million.
1: Material is defined in AS-702: The Audit Report on an Attest Audit as: A statement, fact, or item that is of such a nature or amount that its disclosure, or the method of treating it, given full consideration of the circumstances applying at the time the written assertion or set of assertions is completed, has the potential to influence users of the audit subject matter in making decisions or assessments.
page top