Part 8: Key personnel risk

Effectiveness of the New Zealand Debt Management Office.

Our expectations and overall findings

We expected that:

  1. NZDMO would have a process for determining the appropriate level of human resources required to deliver on its objectives;
  2. the skill sets of NZDMO’s employees would be aligned to their designated roles; and
  3. processes would be in place to ensure that institutional knowledge is captured and is maintained.

We found that:

  1. NZDMO has a process for determining the appropriate level of resources, but at times has found it difficult to find suitable candidates to fill specific roles;
  2. the skill sets of NZDMO’s employees are aligned to their roles, although there is limited risk management and portfolio management experience available to handle further growth in NZDMO’s activities; and
  3. processes are in place to ensure that institutional knowledge is captured and maintained.

We concluded that NZDMO’s level of resourcing is appropriate and employees have the relevant skills for their roles.

Management of key personnel risk

There is a consensus of opinion among NZDMO management that maintaining a sufficient number of professionals with the appropriate level of experience and skill is a primary concern. NZDMO has experienced some staff turnover in each of its three functions. However, this issue is not inconsistent with many other New Zealand organisations that require highly specialised and skilled resources from an extremely tight labour market.

NZDMO’s management team has strategies in place to manage this ongoing issue. Staffing of the Portfolio Management Group (PMG) has been maintained by recruitment from a combination of sources – from within NZDMO and externally from the financial markets. By comparison, resourcing requirements of the RPT and the Accounting and Transactional Services team are solely externally focused.

During the last three years, NZDMO staff positions have reduced by approximately two full-time equivalents (FTEs) at a time when the number of transactions has increased by around 50%, mainly because of increases in foreign exchange, derivative, and cash management activity.

NZDMO’s management team has remained stable, and the appetite for taking financial risk has diminished under the incumbent Treasurer.

The RPT area operates with a small head count and would be considered thinly staff ed in comparison to Australian state Borrowing Authorities (although many are generally larger organisations compared to NZDMO). The potential to quickly deliver on new project initiatives is therefore restricted. In addition, there is key personnel risk regarding retention of intellectual property and organisational capability.

A peer comparison shows that the RPT group performs a wide range of functions, including technical support, strategic, research and development, risk support, compliance, and systems functions. While we recognise that there is a fine balance between resourcing and cost effectiveness, additional staff would aid in expanding such activities and would decrease key personnel risk. Further, it may allow a more strategic view of issues to be taken as well as allowing more strategic advice to clients.

NZDMO’s 2006/07 business plan details five primary projects for which the estimated human resource required ranges from 2.2 to 5.5 FTEs annually. Given that the nature of these projects is largely debt management focused, this dictates that a fair proportion of this resourcing would need to be provided from the Portfolio Management Team, which comprised 7 FTE positions at the time of our audit.

This is an environment where transaction activity is expected to growth further (for instance, from the introduction of an NZDMO bond repurchase and sale facility). Growth is also expected in accordance with NZDMO’s strategy, which is to undertake more of the foreign exchange business of government departments and Crown entities. New business is expected to arise from both existing clientele and from transacting with new organisations.

With the loss of a senior portfolio manager and the need to train junior staff in Portfolio Management, we consider that NZDMO will be challenged to complete all the initiatives detailed in its business plan. The team’s overall level of senior financial market experience (more than five years) is limited to several individuals in terms of discharging NZDMO’s strategic planning responsibilities across a broad scope of financial instruments (futures contracts on six exchanges, 18 currencies, active domestic borrowings programmes, interest and currency swaps, and various investment products).

IT key personnel risk

To maintain and support IT systems in the future, the NZDMO IT team needs staff who can resolve system problems and develop requested enhancements. Also, the IT team needs to maintain complete documentation of processes and system design.

Key personnel risk exists at NZDMO, because the IT systems were developed by a small core team that includes an individual who has worked with NZDMO for more than 20 years. To reduce key personnel risk, NZDMO IT expanded its team to five people (four permanent staff and one consultant) and cross-trains its staff. NZDMO recognises that IT staff need to understand its business and how the IT functions should work, and be able to communicate to staff in other parts of the NZDMO using their language. To facilitate cross-training, comprehensive system documentation is available to explain the Matriarch system, Infinity tables used in Microsoft® Access, development standards, configuration procedures, and troubleshooting.

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