Part 4: The risks to our success

The identification and management of risks are integral to our business. In our view, we face two key strategic risks:

• Loss of independence – independence underpins the value of the Auditor-General’s products. Losing that independence in fact or appearance, whether by failure on the part of the Auditor-General or his appointed auditors to act independently or otherwise, would undermine trust in our organisation.
• Audit failure – the risk that we issue an incorrect audit opinion with material impact, or a report that is significantly wrong in nature or process.

These risks will always be present, but much of the work we do has the effect of mitigating them.

Mitigation actions

The key mitigation actions are:

• the Auditor-General’s independence standards – the Auditor-General sets a high standard for independence for both his employees and the auditors he appoints;
• monitoring the independence of statutory officers, employees, and appointed auditors – the system includes regular declarations of interest and, where necessary, implementation of measures to avoid conflicts of interest;
• adhering to professional auditing standards;
• quality assurance regimes including implementing and complying with New Zealand Institute of Chartered Accountants’ revised quality control standards;
• peer review and substantiation procedures – these include annual independent evaluation of our audit allocation and tendering processes, independent external review of two performance audits each year, stakeholder feedback studies, and, this year, an international peer review of our operations to be carried out by four external reviewers;
• an independent Audit and Risk Management Committee, comprising three external members and the Deputy Controller and Auditor-General; and
• ongoing training and development of our staff– including talent and capability management programmes, leadership development initiatives, and professional development programmes.

Operational risk

Identifying more specific risks is a key part of our annual planning process. We carry out a review of the environment in which we operate. We consider economic, legal, social, environmental, and technological developments, and changes in the accounting and auditing professions, which might affect us. We look too at the effect such matters might have on our stakeholders and the entities that we audit.

In the coming year, we will continue to develop our processes for managing strategic and operational risks, to ensure that all significant risks are identified, that mitigation measures are put in place where appropriate, and that responsibility for the implementation of those measures is clearly allocated. We will also ensure that all such activity is clearly documented.

Organisational health and capability

“Developing our people” is a critical business objective to achieving our goal of being a benchmark provider of independent assurance services. This was highlighted in our five-year strategic plan, which Parliament supported with additional funding in 2004.

Since 2004 we have made good progress in:

• building up our capability to undertake performance audits;
• implementing our project office approach;
• building up our research and development capability;
• improving how we manage inquiries;
• achieving efficiencies through merging the corporate services teams of Audit New Zealand and the Office of the Auditor-General;
• implementing Audit New Zealand’s comprehensive professional development programme for audit staff;
• investing in leadership and management development of senior staff;
• improving the self-awareness of senior staff through a comprehensive 360-degree feedback process;
• improving our recruitment strategies, including starting an internship programme at Audit New Zealand; and
• devoting greater resources to our Human Resources team, so they can better support staff development.

However, we continue to experience difficulties in recruiting suitably qualified and experienced senior staff because of industry and labour market shortages. Retaining good staff is therefore critical, and the ongoing investment in development is essential.

The aim of the investment in leadership and management development is to improve the performance of our leaders and managers, in order to deliver on our vision as the “benchmark provider”. Investing in our leaders and managers is also important because:

• to respond to environmental changes, our leaders and managers need to deliver high quality audit and assurance services with an increasingly proactive and innovative approach;
• it gives them the increased motivation, commitment, and capability to take responsibility for developing themselves and their staff;
• they will demonstrate the style and behaviours we need to develop a “constructive” culture; and
• our leaders and managers need the skills and ability to lead the cultural change required by our commitment to organisational development.

During 2007/08 we intend to focus on:

• strengthening the management and leadership development of our people;
• further embedding the national professional development programme;
• supporting all staff members with Individual Development Programmes;
• ongoing investment in targeted areas of generic training (for example, Te Reo, presentation skills, media liaison, and writing);
• completing a significant “future business model” project that will provide us with a robust planning tool to better forecast staff requirements;
• introducing High Potential and Talent Management programmes to recognise, reward, and develop our high performers;
• further embedding our national internship programme; and
• further aligning our human resources policies and procedures to support recruitment, retention, and development of the best people.

Measuring our organisational health and capability

As with previous years, we will use an existing framework to measure our organisational health and capability. Central to this will be our annual climate survey completed by all staff. The climate survey provides us with an indication of overall staff satisfaction as well as a staff assessment of:

• their own professional development;
• the implementation of our strategy;
• management and leadership effectiveness; and
• the usefulness of business processes and systems.

As well as the annual climate survey, we will also continue to measure key statistics against previous years to provide us with a picture of our capability.

These include:

• staff numbers and the distribution of staff by function, gender, and ethnicity;
• numbers of internal promotions to senior roles;
• average investment in staff training and development; and
• data on staff tenure and turnover.

In 2007/08 we aim to:

• maintain and improve our overall rating as assessed by staff in our annual climate survey; and
• maintain and improve all of the key capability statistics from the previous year.

A summary of information from previous years is included as Appendix 5.