Part 8: Statements of Intent and service performance information

8.101
In our report last year, Central government: Results of the 2004-05 audits, we discussed the Managing for Outcomes (MfO) initiative put in place to support government departments’ planning for, management of, and reporting on how they use public resources to fulfil their functions.¹ The experiences from this initiative subsequently informed the Managing for Results (MfR) initiative for Crown entities. We noted the importance of the Statement of Intent (SOI) as the public accountability document that sets out the result of planning for how government departments and most Crown entities use public resources.

8.102
Although the Auditor-General does not have a statutory audit role for SOIs, the State Services Commission (the SSC) and the Treasury’s guidance for departments advises that entities:

…engage early with the Appointed Auditor on the draft SOI. The appropriateness of measures chosen and the auditability of systems used to record performance data are both of major interest to the auditor. Involvement of the Appointed Auditor at this initial stage may also assist departments in improving the quality of the SOI, and to identify and address appropriate risks.²

8.103
Similar guidance is provided to Crown entities. This guidance reflects the Auditor-General’s statutory role in auditing the Statement of Service Performance (SSP) as part of the annual audit of government department and Crown entity financial statements, and advising select committees as part of the Estimates of Appropriations and financial review processes.

8.104
Last year, we reported that the quality of departmental 2005/06 SOIs in general was variable and that government departments had made only small, incremental improvements in quality on the 2004/05 SOIs. There are three particular areas where we consider that they need to make more substantial improvement:

• setting out the logic and evidence that links the key outputs produced to the outcomes worked toward;
• comprehensively identifying the risks faced by departments and providing more detail on how these risks are managed; and
• refining the output and outcome indicators and gradually introducing outcome reporting in SSPs.

8.105
In the past, we have sought to provide feedback on draft SOIs to government departments. However, this has not always happened consistently, or in time for us to provide, and departments to respond to, substantial feedback. The effect of this has been that departments often cannot consider auditor feedback on areas for improvements until the next year.

8.106
The Crown Entities Act 2004 required most Crown entities to prepare an SOI for 2006/07. For some entities, this was the first time they had to prepare an SOI. For other entities, it was the first time they had to meet the broader, outcomefocused requirements of the new Act. Therefore, we have not yet formed overall views about the extent to which these SOIs reflect Parliament’s intentions.

8.107
Our report last year indicated that we would consider what further work we could undertake to provide assurance to Parliament about the effectiveness of the MfO initiative, and what, if any, lessons may be learned for implementing the MfR initiative in the Crown entities sector.

8.108
We also note that, under our annual assessments for aspects of financial and service performance management by government departments, the Service Performance Information Systems aspect³ has consistently had the lowest proportion of “Excellent” or “Good” ratings between 1993/94 and 2005/06 (see Part 2 of this report).

8.109
While we are concerned about this finding, it is important that entities consider the outcome and output information they are most likely to need to effectively manage their performance. They should then set up service performance information systems to support the collection, monitoring, and use of the “right” information.

8.110
In this Part, we describe the work we intend to undertake in 2007/08 on service performance reporting by government departments and most Crown entities. We also describe how the work relates to changes in our reporting to entities, Ministers, and select committees, as outlined in Part 3.

8.111
This work is a component of a wider programme within the Office intended to improve the depth of our service performance information audit work. By undertaking this work, we hope to better position the Office to contribute to improving the meaningfulness and usefulness of service performance information reported by public entities.

Our intended work on service performance information in 2007/08

8.112
Every public sector jurisdiction that uses planning and reporting systems to help assess the effectiveness of public entities’ performance is concerned to ensure that such information is meaningful and useful. We acknowledge that public sector entities vary enormously in their size, governance arrangements, services, and functions. The nature of public services means that the desired results and outcomes can vary over time and according to the needs and interests of different stakeholders. This complexity and diversity has meant that, unlike with financial statements, standards have not yet emerged for the content, measurement, disclosure, and presentation requirements of service performance statements.

8.113
We have been mindful that government departments and Crown entities needed time to develop outcome reporting and associated outcome-related measures, and to relate these to their output service performance information, as required by recent legislative changes. However, we have observed that there has been little development in departments’ 2006/07 SOIs compared with 2004/05 and 2005/06.

8.114
In our view, there has now been enough time since the 2004 amendments to the Public Finance Act 1989 and the Crown Entities Act 2004 were passed for entities to develop outcome reporting and associated outcome-related measures and link them logically to output reporting.

8.115
Service performance reporting, in particular the “appropriateness” of the service performance measures used, will therefore be an area of emphasis in 2006/07 annual audits.

8.116
This emphasis will involve reviewing 2007/08 SOIs for government departments and most Crown entities⁴ to understand the strategic and outcome context for annual SSP performance measures, as well as entities’ processes and rationale for including these in the SOI. This means they will need to:

• determine and review service performance information needs, and choose what to report (that is, the quality of the SOI in relation to the entity’s vision, mission, and strategic intent, and the links to reported outputs and activities);
• choose performance measures; and
• choose levels of planned performance (the standards or targets forecasted or aimed for).

8.117
Our expectations for these matters are aligned with the guidance and instructions issued by the SSC and the Treasury.⁵

8.118
We expect to review many SOIs in draft form, and have sought the assistance of entities to allow us to do this. However, if we do not receive SOIs within enough time to provide feedback on the draft, we will undertake our review against the final SOI.

8.119
Our reporting to entities, Ministers, and select committees will reflect the findings from our review of service performance information. However, for the 2006/07 year, this will be only in the form of commentary on the direction the auditor believes any improvement in service performance information should take. From the 2007/08 annual audits, we will report a grading for entities on their service performance aspect.

8.120
We will incorporate the lessons learned from our reviews of SOIs into our audit methodology for future service performance audit work.

8.121
We expect service performance information and reporting to be an element of a continued focus by the Office, working with central agencies and entities to improve the effectiveness and use of SOIs to better meet Parliament’s intentions. It is likely that we will, in the future, focus on the collection, management, and use of service performance information.

1: Parliamentary paper B.29[06a], “Part 7 – Planning and managing for better public sector performance”.

2: Guidance and Requirements for Departments Preparing the Statement of Intent, the Treasury and the State Services Commission, March 2007, pages 5-6.

3: Service performance information systems are the systems to record service performance (non-financial) data, and the internal controls (manual and computer) to ensure that data is complete and accurate.

4: Those required by legislation to produce a Statement of Intent.

5: Guidance and Requirements for Departments: Preparing the Statement of Intent, the Treasury and the State Services Commission, March 2007, and Preparing the 2006/07 Statement of Intent – guidance and requirements for Crown entities, the Treasury and the State Services Commission in consultation with the Department of the Prime Minister and Cabinet, September 2005.