Introduction

This is our report on the 2006/07 audits of the central government sector.

The purposes of this report are to:

• report on the 2006/07 audit of the Government reporting entity and its sub-entities - as reflected in the Financial Statements of the Government of New Zealand for the Year Ended 30 June 2007;¹
• report on the results of, and matters arising from, our 2006/07 audits of the central government sector; and
• raise other matters that we believe warrant consideration by Parliament.

Summary

Section 1 has two Parts:

• In Part 1 we discuss the significant matters arising from the 2006/07 audit of the Government’s financial statements, including our concerns with the performance of some entities in providing timely audited information to the Treasury for consolidation, and issues arising in the valuation of student loans.
• In Part 2 we comment on our increasing unease with the appropriateness of New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) for the public sector, and report on progress made by the central government sector towards preparing the first set of financial statements in accordance with NZ IFRS.

Section 2 has six Parts dealing with the results of, and matters arising from, our 2006/07 audits of the central government sector.

• In Part 3 we report on our 2006/07 assessments of central government entities’ environment, systems, and controls. We note that many government departments and district health boards received a “needs improvement” grade for either the management control environment or the financial information systems and controls.
• In Part 4 we discuss the range of funding arrangements in the public sector and the overarching principles that we see as relevant to managing such arrangements. We also discuss the findings from our work in 2006/07 on funding and procurement matters, and our expanding programme of work involving procurement, grants administration, and other funding arrangements.
• In Part 5 we report on our review of 2007/08 statements of intent for government departments and many Crown entities. We comment on the disappointing quality of non-financial performance reporting and the need for it to significantly improve.
• In Part 6 we briefly outline the public finance principles underpinning our Controller function and appropriation audit work, discuss the unappropriated expenditure for 2006/07, and report on some of the issues we have considered during the year.
• In Part 7 we report on the non-standard audit reports issued during 2007 on the financial statements of public entities within our central government portfolio of audits. We report on school boards of trustees separately from the other public entities.
• In Part 8 we discuss our concern about the continuing pattern of audit arrears in the Māori Trust Boards (MTBs) sector. We note our intention to continue to work directly with MTBs to bring these audits up to date as soon as possible.

Section 3 has two Parts:

• In Part 9 we discuss our approach to producing good practice guidance and how we use it. We also list the good practice guides we have issued recently.
• In Part 10 we discuss our most recent guide on audit committees in the public sector.

Section 4 has one Part dealing with other work we have carried out.

• In Part 11 we describe how the Department of Corrections set up and managed consultation processes during a project to build four new regional prisons. We discuss the systems, policies, and processes used to support consultation about the Spring Hill prison site in North Waikato, and some of the Department’s earlier experiences with consultation about the Ngawha prison site in Northland.

1: Parliamentary paper B.11, published in 2007.