Part 3: Organisational health and capability
Report of the Audit and Risk Management Committee
for the year ended 30 June 2007
Members:
- Anthony N Frankham FCA, FAMINZ, AFIOD (Chairman), professional director and specialist investigating accountant
- Brigid McArthur BA, LLB (Hons) (to 13 February 2007), partner, Chapman Tripp, Barristers & Solicitors
- Joanna Perry MA (Cantab), FCA (ICAEW), FCA (NZICA) (from 13 February 2007), professional director and chartered accountant
- Stephen Revill BA, LLB (from 3 September 2007), consultant, Bell Gully
- Ross Tanner MA (Hons), MPA (Harvard), director, Ross Tanner Consulting Limited
- Phillippa Smith BA, LLB, MPP, Deputy Controller and Auditor-General
The Audit and Risk Management Committee is an independent committee established by, and reporting directly to, the Auditor-General. The Committee was established in 2003, as the Audit Committee. The reference to risk was included in the name of the Committee in December 2005, to better describe the Committee’s role.
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; and
- 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;
- oversaw the Office’s review of its risk management framework and the procedures underpinning the framework;
- oversaw the Auditor-General’s contracting out of the internal audit function for the Office;
- 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 judgemental areas, and compliance with legislation and relevant standards; and
- received and considered the report of an independent reviewer on 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 and Risk Management Committee
3 September 2007
Capability report
Our Annual Plan 2006-07 set out the measures we intended to use to assess our current capability, specifically:
- base information - the number of staff and the distribution of our staff by function, gender, and ethnicity;
- other information on our current capability - particularly related to "supply" characteristics; and
- information on how we have maintained and enhanced our capability - including turnover levels, experience levels, and staff satisfaction.
Based on this information, we also make some of our own conclusions about the adequacy, quality, and effectiveness of our current capability.
Overall we have made good progress during 2006/07 in:
- improving staff numbers in a difficult labour market;
- ongoing leadership and capability development of our people;
- embedding our shared services model for corporate services;
- improving our systems and processes;
- improving recruitment and retention strategies to attract and retain good people;
- maintaining acceptable levels of organisational health; and
- implementing Audit New Zealand’s national practice and professional practices groups.
Against our Annual Plan 2006-07 we can generally report modest improvements in organisational capability. Our specific intentions and results against these for 2006/07 were:
- embedding our shared services model for corporate services (achieved); and
- ongoing leadership and capability development of our people (in progress).
Results
The Auditor-General currently employs about 288 staff in eight locations throughout New Zealand. Figure 10 sets out the number and distribution of our staff by function, gender, and ethnicity. Figure 11 sets out our staff’s experience and training. Figure 12 sets out our organisational health and staff satisfaction.
Figure 10
Number and distribution of staff by function, gender, and ethnicity
| As at 30 June | 2007 | 2006 | 2005 | 2004 |
|---|---|---|---|---|
| Staff numbers (full-time equivalents) | ||||
| Office of the Auditor-General |
70.9 |
70.7 |
66.2 |
52.4 |
| Audit New Zealand |
217.2 |
189.1 |
177.6 |
178.4 |
| Total |
288.1 |
259.8 |
243.8 |
230.8 |
| Functional distribution | ||||
| Audit/assurance |
72% |
71% |
69% |
65% |
| Technical and advisory |
4% |
4% |
4% |
4% |
| Corporate support |
20% |
21% |
23% |
27% |
| Management |
4% |
4% |
4% |
4% |
| Gender distribution | ||||
| All staff | ||||
| Women |
54% |
51% |
48% |
46% |
| Men |
46% |
49% |
52% |
54% |
| Management staff | ||||
| Women |
45% |
33% |
30% |
- |
| Men |
55% |
67% |
70% |
- |
| Ethnicity distribution | ||||
| NZ European |
48% |
49% |
53% |
56% |
| NZ Māori |
3% |
3% |
4% |
3% |
| Pacific Islander |
2% |
2% |
2% |
1% |
| Asian |
9% |
12% |
14% |
13% |
| Other European |
8% |
9% |
7% |
8% |
| Other ethnic groups |
3% |
3% |
2% |
4% |
| Undeclared |
27% |
22% |
18% |
15% |
Figure 11
Staff experience and training
| 2006/07 | 2005/06 | 2004/05 | ||
|---|---|---|---|---|
| Experience | ||||
| Average “time in job” | OAG |
5.8 years |
5.6 years |
4.3 years |
| Audit NZ |
4.2 years |
5.0 years |
3.5 years |
|
| Training and development | ||||
| Average spent on formal training (each employee) | OAG |
$2,572 |
$1,754 |
$2,356 |
| Audit NZ |
$3,165 |
$2,298 |
$2,087* |
|
| Pass rate of staff undertaking NZICA accreditation |
100% |
97% |
100% |
* Recorded in the Annual Report 2004-05 as $3,699. That figure had incorrectly included associated training costs, such as travel and other disbursements.
Figure 12
Organisational health and staff satisfaction
| 2006/07 | 2005/06 | 2004/05 | ||
|---|---|---|---|---|
| Organisational health | ||||
| Turnover | OAG | 19% | 17.80% | 8.00% |
| Audit NZ | 18% | 28.00% | 34.80% | |
| Average sick leave taken for each employee | OAG |
5.3 days |
4.3 days |
4.9 days |
| Audit NZ |
4.8 days |
5.2 days |
5.5 days |
|
| Staff survey results (scores out of 6) | ||||
| Job satisfaction |
4.3 |
4.3 |
4.5 |
|
| Organisational satisfaction |
4.6 |
4.5 |
4.6 |
|
| Satisfaction with management |
4.2 |
4.1 |
4.4 |
|
| Understanding of vision and purpose |
3.6 |
3.6 |
4.1 |
|
| Staff assessment of: | ||||
| - The extent of innovation that occurs and is encouraged* |
3.9 |
3.4 |
2.9 |
|
| -The extent of collaboration that occurs and is encouraged |
3.8 |
2.5 |
3 |
|
| - The quality and usefulness of business processes and systems |
4.1 |
4 |
4.4 |
|
| - The adequacy of our resource base |
3.6 |
3.6 |
3.8 |
|
| Audit New Zealand ratio of senior to junior staff hours |
25:75 |
24:76 |
26:74 |
Rating items were deleted from this year’s survey. These scores are not calculated on precisely the same basis as previous years.
Audit New Zealand staff numbers have increased from the previous year because of:
- less turnover of recently qualified chartered accountants;
- a successful graduate recruitment intake – 25 graduates started with Audit New Zealand in February 2007; and
- successful recruitment of Audit Managers and Directors.
The general distribution of staff by function, gender, and ethnicity has largely remained similar to previous years.
While recruitment remains challenging, in 2006/07 we implemented new graduate recruitment strategies. Audit New Zealand became more active with the universities during 2006/07, and during the summer it ran its first internship programme in Wellington. This resulted in seven of the eight interns being offered permanent positions. Audit New Zealand views the internship programme as now being its most important method of recruitment and plans to broaden the programme, offering it nationwide and to greater numbers.
In 2006/07 we also bedded down the new merged corporate services team. The merger resulted in considerable staffing changes, and more staff allocated to Human Resources. The merger has resulted in considerable improvements to corporate support – in particular, in areas of compliance, systems, and business processes.
Training and development
“Developing our people” remains one of our main strategic objectives. The increase in the amount we spent on training and development for each member of staff in 2006/07 shows that we continue to make serious investments in the development of our people. Ultimately the investment is about improving the overall quality of our people and therefore their work. Staff development is also critical for retention purposes.
In 2006/07 Audit New Zealand reintroduced its national professional development programme for all audit staff. The programme delivered 21 modules/courses, which were highly rated by audit staff. The programme is aimed at developing audit staff’s base professional competencies. This includes equipping them to work within Audit New Zealand’s national professional practice framework, audit methodology, quality control systems, and the Auditor- General’s statements and standards. In conjunction with the OAG, Audit New Zealand also delivered technical workshops and updates as part of its “auditor readiness” programme to prepare it for the introduction of IFRS to New Zealand.
The Office has also continued to invest in leadership and management development. In particular, this included:
- introducing an emotional intelligence-based 360-degree feedback programme, helping to inform individual development plans;
- holding a series of workshops titled “Having encouraging conversations”, aimed at equipping our senior staff with tools and advice to improve communications, feedback, and conflict management with staff , clients, members of Parliament, and other stakeholders;
- introducing a comprehensive applicant development and assessment programme at Audit New Zealand for internal staff applying for senior roles; and
- a good number of senior staff participating in local and international leadership programmes – in particular, through the Leadership Development Centre of New Zealand.
The Office also offered other courses throughout the year, including writing skills, presentation skills, media handling, machinery of government, and health and safety.
Organisational health and staff satisfaction
Overall, our organisational’s health is at an acceptable level. Staff turnover at Audit New Zealand is down on previous years. Staff turnover at the OAG during 2006/07, while high, was a result of natural attrition in most cases.
The annual climate survey results showed that staff generally have high levels of satisfaction and commitment to the organisation. Areas that management need to address include their own effectiveness as managers and ensuring that staff understand the Office’s strategy and vision.
Equal Employment Opportunities and Effectiveness for Māori
We made limited progress during 2006/07 with our existing Equal Employment Opportunities and Effectiveness for Māori programmes, although we continue to:
- ensure that our recruitment strategies, particularly job advertisements, are aimed at a wide audience; and
- offer applicant development programmes to assist female staff to apply for senior roles.
More formal effort is required to raise staff awareness of aspects of tikanga Māori and kaupapa Māori, including basic understanding of the Treaty and language skills.
Information technology systems
The Office, especially Audit New Zealand, is highly dependent on information technology to complete its work. Audit staff working in the field need to have remote access and communications tools to ensure an effective, efficient, and customer-focused service. During 2006/07, the Office continued to invest in mobile technologies. All audit staff have mobile communication devices and the majority of audit staff are able to access our networks through wireless technologies. This is already benefiting how we get our work done.
Figure 13 summarises details of our performance against the measures set out in our Annual Plan 2006-07.
Figure 13
Financial performance indicators for the year ended 30 June 2007
| Measure | 2006/07 actual $000 |
2006/07 forecast $000 |
2006/07 Annual Plan $000 |
2005/06 actual $000 |
|---|---|---|---|---|
| Operating results | ||||
| Revenue: other than Crown |
58,339 |
59,696 |
42,162 |
42,737 |
| Output expenses |
67,345 |
69,024 |
51,201 |
51,700 |
| Surplus before capital charge |
455 |
127 |
377 |
263 |
| Surplus |
329 |
7 |
255 |
140 |
| Working capital management | ||||
| Current assets less current liabilities |
1,909 |
1,736 |
1,824 |
1,538 |
| Current ratio |
124% |
128% |
131% |
123% |
| Average receivables and work in progress* |
61 days |
26 days |
36 days |
42 days |
| Resource use | ||||
| Physical assets: | ||||
| Total physical assets at year-end |
2,389 |
2,300 |
2,262 |
2,505 |
| Additions as % of physical assets |
51% |
54% |
60% |
60% |
| Taxpayers’ funds | ||||
| Level at year-end |
3,586 |
3,586 |
3,586 |
3,586 |
| Net cash flows | ||||
| Surplus/(Deficit) on operating activities |
1,867 |
1,039 |
1,482 |
984 |
| Surplus/(Deficit) on investing activities |
(1,015) |
(963) |
(1,185) |
(1,368) |
| Surplus/(Deficit) on financing activities |
- |
- |
(244) |
(937) |
| Net increase/(decrease) in cash held |
852 |
76 |
53 |
(1,321) |
* Calculation of average receivables and work in progress has now been adjusted to exclude revenue relating to contracted audit service providers. The increase in days in the current year is attributable to this change.
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