Part 3: Statement of forecast service performance
Our output classes
Our output classes and the outputs within them are:
- Audit and assurance services
This output class is limited to the performance of audit and related assurance services as required or authorised by statute. The Auditor-General is required to audit the financial statements of the Government, public entities’ financial statements, and other information that must be audited. The Auditor-General is also enabled to perform other services reasonable and appropriate for an auditor to perform and to audit other quasi-public entities. There is one output within this output class: Audit and assurance services. - Supporting accountability to Parliament
This output class is limited to reporting to Parliament and others as appropriate on matters arising from annual and appropriation audits, reporting to and advising select committees, and advising other agencies on the requirements of parliamentary and related accountability systems, to support Parliament in its holding the executive to account for its use of public resources. There are two outputs within this output class: Parliamentary services and Controller function. - Performance audits and inquiries
This output class is limited to undertaking, and reporting on, performance audits and inquiries relating to public entities under the Public Audit Act 2001 and responding to requests for approvals in relation to pecuniary interest questions regulated by the Local Authorities (Members’ Interests) Act 1968. There are two outputs within this output class: Performance audits and Inquiries.
For comparative purposes, we have provided actual achievements against measures and standards for 2005/06 and 2006/07. As information is not yet available in most instances for 2007/08, we have not given forecast actual achievements for that year. The measures and standards for 2008/09 are substantively the same as those for 2007/08.
Output class: Audit and assurance services
This output class relates to the Auditor-General’s statutory duty to carry out annual audits of the financial reports, and in some cases performance information, of about 4000 public entities, including the Financial Statements of the Government. It includes other audits that the Auditor-General is required to do by statute, such as the three-yearly audits of local authorities’ Long-Term Council Community Plans (LTCCPs), and other assurance services provided to public entities on behalf of the Auditor-General. 2008/09 is the next year in which LTCCP audits will be done; these represent a significant increase in audit work within this output class.
Audits and assurance services account for about 85% of our total budgeted expenditure. Audit New Zealand and private sector accounting firms carry out annual audits and provide other assurance services on behalf of the Auditor-General. The audits and other services are funded mainly by fees paid by the public entities.
Auditor appointments and fee monitoring of annual audits
The Auditor-General appoints auditors to carry out the annual audits of public entities. He appoints auditors from a pool of audit service providers that includes Audit New Zealand and private sector accounting firms, ranging from the four major chartered accountancy firms to sole practitioners. Most audits are allocated directly to an auditor, but a few auditors are appointed to an audit after a competitive tender.
Because we mainly use an allocation approach, we monitor audit fees at the point of negotiation and provide a comparative analysis to help resolve any concerns about proposed audit fees. Our objective is to ensure that audit fees are fair to the public entities subject to audit and provide a fair return to the auditors for the work required by them to meet the Auditor-General’s auditing standards.
Performing annual audits
There are two main products from an annual audit:
- The audit report is addressed to readers of the financial statements and performance information. It provides the auditor’s independent opinion on whether the financial statements and performance information fairly reflect the public entity’s performance. If the financial statements fairly reflect the public entity’s financial performance and position and, where applicable, service performance information, the auditor will issue an audit report with an unqualified opinion. However, if the auditor identifies a material1 error or omission in the financial statements or performance information, the auditor will issue an audit report with a qualified opinion (which we refer to as a nonstandard opinion).
- The management report is addressed to the governing bodies and management of public entities. It sets out any significant issues the auditor identified during the audit. The report recommends ways the public entity could improve its controls, systems, and processes.
If public entities are subject to financial review by Parliamentary select committees, we report the results of the annual audits to responsible Ministers and select committees. This includes providing a grading for entities, based on our assessment of their management control environment, financial and service performance systems (where required), and controls.
Quality assurance of annual audits
Because the Auditor-General is responsible for auditing all public entities, we must ensure that audits are performed effectively and efficiently. We carry out quality assurance reviews of appointed auditors to ensure that they have complied with the relevant professional accounting and auditing standards, as well as the Auditor-General’s own published auditing standards.
We aim to review the performance of each of our appointed auditors at least once every three years. If we identify any concerns, we carry out more frequent follow-up reviews.
Measuring our performance for output Audit and assurance services
| 2008-11 Main measures and standards of impacts | 2006/07 Actual |
2005/06 Actual |
|---|---|---|
| The number of public entities’ audited financial reports issued within the statutory timeframe is improved (or at least maintained), measured against the previous two years.* | 4090 completed, 360 in arrears | 4063 completed, 315 in arrears |
| The number of public entities’ audited financial reports containing qualified opinions is reduced (or at least maintained), measured against the previous two years. | 288 | 371 |
| Public entities’ acceptance of Audit New Zealand’s management letter recommendations is improved (or at least maintained), measured against the previous two years. | 64% | 53% |
| Central government entities’ management control environment, financial information and service performance information systems, and controls are improved (or at least maintained), measured against the previous two years.** | N/A | N/A |
* Audits may not have been completed for several different reasons, including that the entity has not produced financial statements for audit, that the audit of the previous year’s financial statements has not been completed (and must be audited first), that there are delays on the part of the entity in responding to audit queries, that the audit is under way but the financial statements have not been available to us for more than 30 days, and that the audit is complete and waiting for the entity’s Board to adopt the financial statements.
** We collected benchmark data in 2007 for our first assessment of central government entities’ management control environment and financial systems and controls aspects. We will collect benchmark data in 2009 for our assessment of the entities’ service performance systems and controls.
| 2008/09 Measures and forecast standards of output delivery | 2006/07 Actual |
2005/06 Actual |
|---|---|---|
| Less than 10% of the outstanding audit reports at 30 June 2009 are because of inaction on our part.* (New measure in 2007/08.) | N/A | N/A |
| All management reports are issued within six weeks of issuing the audit report. | 95% | 95% |
| No outstanding LTCCP audit opinions at 30 June 2009 are because of inaction on our part and all LTCCP management reports are issued within six weeks of issuing the audit report. (New measure in 2008/09. The audit of LTCCPs occurs every three years.) | N/A | N/A |
| Client satisfaction survey results show that, overall, of 75% respondents are satisfied with the quality of audit work (including the expertise of staff and the quality of the entities’ relationships with their audit service provider).** | 75% (based on Audit NZ clients) | N/A |
| Quality assurance reviews for all appointed auditors are completed during a three-year period. Of the auditors reviewed in any given year, 95% achieve a result of “satisfactory” or better.§ | Achieved | Achieved |
| An annual independent review of our processes confirms the probity and objectivity of the methods and systems we use to allocate and tender audits, and monitor the reasonableness of audit fees.§§ (New measure in 2007/08.) |
N/A | N/A |
| The Officers of Parliament Committee accepts any significant proposals for an appropriation increase in audit fees and expenses. (New measure in 2007/08.) |
N/A | N/A |
* Audits may not have been completed for several different reasons, including that the entity has not produced financial statements for audit, that the audit of the previous year’s financial statements has not been completed (and must be audited first), that there are delays on the part of the entity in responding to audit queries, that the audit is under way but the financial statements have not been available to us for more than 30 days, and that the audit is complete and waiting for the entity’s Board to adopt the financial statements.
** We assess this measure through our Client Survey. Appendix 3 provides further information about the method used for this survey.
§ There are five levels of quality assurance ratings, assessed using the reviewers’ overall judgement of the quality of the audit work carried out. The five levels are “excellent”, “very good”, “good”, “satisfactory”, and “requires improvement”. We will identify how many auditors have not achieved a “satisfactory” rating or better, and describe the actions we intend to carry out to address it.
§§ We will include in our annual report a copy of the independent reviewer’s report, and provide an explanation of our performance.
The Vote estimate for the Audit and assurance services output class in 2008/09 is $61.482 million (including funding for audits of smaller entities).
Output class: Supporting accountability to Parliament
This output class includes two outputs:
- Parliamentary services - advice and assistance to select committees and other stakeholders; and
- Controller function - independent assurance to Parliament that departments and Offices of Parliament have incurred expenses and capital expenditure for purposes that are lawful and within the scope, amount, and period of the appropriation or other authority.
Parliamentary services
Because of our annual audit, performance audit, and inquiry work, the Auditor-General has a broad overview of public entities both individually and throughout sectors. We provide advice and assistance to select committees, Ministers, and individual members of Parliament, as well as to central agencies and other public sector representative groups, to help them improve the performance and accountability of public entities.
The main ways in which we provide this advice and assistance are through:
- reports and advice to select committees to assist their financial reviews of government departments, State-owned enterprises, and Crown entities;
- reports to responsible Ministers on the results of the annual audits; and
- reports and advice to select committees to assist their examination of the Estimates of Appropriations.
Each year, we prepare 80 to 90 financial review reports, 40 to 50 Estimates of Appropriations examination reports, and 120 to 130 reports to responsible Ministers.
We also provide advice and assistance through:
- reports to Parliament and other constituencies on matters arising from our annual audits (with at least two reports presented to Parliament each year);
- responding to requests and participating in working parties on financial management and accountability matters with other stakeholders, including government departments, central agencies, local authorities, professional bodies, sector organisations, and other public entities; and
- working with other Auditors-General to encourage, promote, and advance cooperation among members in the field of public audit. This includes our roles as Secretariat of the South Pacific Association of Supreme Audit Institutions (SPASAI), membership of various committees of the International Organisation of Supreme Audit Institutions (INTOSAI), and executing agent for the Pacific Regional Audit Initiative (which is funded by the Asian Development Bank, with co-financing from the Japan Special Fund and the Government of Australia).
Measuring our performance for output Parliamentary services
| 2008-11 Main measures and standards of impacts | 2006/07 Actual |
2005/06 Actual |
|---|---|---|
| Select committees confirm that our advice assists them in Estimates of Appropriation and financial review examinations.* (New measure in 2007/08.) |
N/A | N/A |
| 2008/09 Measures and forecast standards of output delivery | 2006/07 Actual |
2005/06 Actual |
| Reports and advice are given to select committees and Ministers at least two days before an examination, unless otherwise agreed. | 100% | 100% |
| An internal review of a sample of Financial review, Estimates, and Ministerial reports confirms that they meet the relevant standards and procedures, including that reports are consistent in their framework and approach and are peer reviewed in draft.** | Achieved | N/A |
| At least 85% of select committee members we survey rate the quality of the advice they receive from us as 4 or better on a scale of 1 to 5.* | Achieved | Achieved |
| At least 85% of other stakeholders we survey rate the usefulness of the advice they receive from us as 4 or better on a scale of 1 to 5.* (New measure in 2007/08.) |
N/A | N/A |
* We assess these measures through our Stakeholder Survey. Appendix 3 provides further information about the method used for this survey.
** The nature, extent, and frequency of the quality assurance review is determined based on risk. The review is carried out during a three-year period.
Controller function
The Controller function provides independent assurance to Parliament that departments and Offices of Parliament have incurred expenses and capital expenditure for purposes that are lawful and within the scope, amount, and period of the appropriation or other authority.
The Office of the Auditor-General and appointed auditors carry out standard procedures to give effect to the Controller function in keeping with the Auditor-General’s auditing standards and the Memorandum of Understanding with the Treasury. This involves reviewing the monthly reports provided by the Treasury, and advising the Treasury of any issues arising and the action to be taken.
The audit work on appropriations, in conjunction with annual audits of government departments, underpins the Controller function. This work is a statutory function of the Auditor-General under section 15(2) of the Public Audit Act 2001. The Auditor-General’s appointed auditors carry out an appropriation audit as part of the annual audit of each department, to:
- determine whether the department has incurred expenses or capital expenditure within the amount, scope, and period of an appropriation or other statutory authority;
- confirm that expenses incurred have been for lawful purposes; and
- confirm that the department reports any unappropriated expenditure in its financial statements.
Measuring our performance for output Controller function
| 2008-11 Main measures and standards of impacts | 2006/07 Actual |
2005/06 Actual |
|---|---|---|
| Expenses and capital expenditure of departments and Offices of Parliament are incurred for purposes that are lawful and within the scope, amount, and period of the appropriation or other authority. Where there is a breach or suspected breach, actions are taken in accordance with the Auditor-General’s powers and auditing standards, and the Memorandum of Understanding with the Treasury. (New measure in 2007/08.) | N/A | N/A |
| 2008/09 Measures and forecast standards of output delivery | 2006/07 Actual |
2005/06 Actual |
| Monthly statements provided by the Treasury are reviewed for the period September to June inclusive. Advice of issues arising and action to be taken is provided to the Treasury and appointed auditors within five working days of receipt of the statement. | Achieved | Achieved |
| Internal quality assurance undertaken to gain assurance that our policies, procedures, and standards in relation to the Controller function have been applied appropriately.* | Achieved | N/A |
* The nature, extent, and frequency of the quality assurance review is determined based on risk. The review is carried out during a three-year period.
The Vote estimate for the Supporting accountability to Parliament output class in 2008/09 is $2.460 million.
Output class: Performance audits and inquiries
This output class includes two outputs:
- Performance audits - non-financial audit reports to Parliament and other constituencies on matters arising from examining how well public entities perform their activities; and
- Inquiries - carrying out, and reporting on, inquiries of central and local government entities.
Performance audits
Performance audits are significant in-depth projects. They form the bulk of the Auditor-General’s discretionary work programme. They are non-financial audits and can examine whether public entities:
- are carrying out their activities effectively and efficiently;
- are complying with their statutory obligations; and
- have acted wastefully or with a lack of probity or financial prudence.
Performance audits differ in their scope and coverage of the above areas. They usually provide assurance about specific issues or programmes and how the relevant public entity or entities have managed them, and usually recommend improvements. We carry out performance audits in both the central government and the local government sectors. We also publish good practice guides on topical issues of public sector accountability and performance.
To select performance audits and studies, we scan the environment each year. Through this process, we assess risks and identify the issues and programmes that our performance audits will examine. Environmental scanning helps determine how we can use our discretionary resources to best effect.
In deciding the discretionary work programme, the Auditor-General considers that - regardless of any other work he might do - he has a responsibility to Parliament and the public to regularly provide assurance about the activities of public entities that are large and complex, and/or where it is difficult to assess their performance.
Core areas of interest for the Auditor-General include:
- major public investment or liability management (focusing on the New Zealand Debt Management Office, Accident Compensation Corporation, New Zealand Superannuation Fund, Government Superannuation Fund, Earthquake Commission, and Student Loans Scheme);
- major public revenue management or generation (focusing on the Inland Revenue Department and New Zealand Customs Service);
- major asset management or infrastructure spending or management (focusing on health, correctional facilities, education, defence, conservation, transport, housing, and energy); and
- major expenditure, including service delivery expenditure (focusing on health, education, and social security and welfare).
We also identify areas within or throughout entities or sectors that warrant further examination. To assign priorities to these areas, we consider:
- the severity and significance of the issue;
- the benefit to the public of examining the issue;
- the extent to which the performance of the public entity or sector could be improved; and
- how the issue fits with the Auditor-General’s role and mandate.
We consult with Parliament and other stakeholders on our Draft annual plan (and in particular our proposed discretionary work programme) to ensure that stakeholders agree we are addressing the issues of greatest relevance.
Appendix 1 sets out our proposed performance audit work programme for 2008/09.
We maintain and follow a performance audit methodology, and use project management disciplines, to help ensure that we carry out, manage, and report our performance audit work effectively and efficiently. Some of our reports are also independently reviewed each year for quality and reasonableness.
Measuring our performance for output Performance audits
| 2008-11 Main measures and standards of impacts | 2006/07 Actual |
2005/06 Actual |
|---|---|---|
Entities accept or respond to the recommendations made in our performance audits, as assessed by:
|
N/A | N/A |
| 2008/09 Measures and forecast standards of output delivery | 2006/07 Actual |
2005/06 Actual |
| We complete 19 to 21 reports on matters arising from performance audits and special studies, and inquiries.* | 20 | 21 |
| Select committees and other stakeholders are satisfied with the proposed work programme of performance audits (as indicated by feedback on our draft work programme). (New measure in 2007/08.) |
N/A | N/A |
| At least 85% of the stakeholders that we survey rate the quality and usefulness of performance audit reports (relevant to their sector or interest) as 4 or better on a scale of 1 to 5.** | 100% quality, 86% usefulness | N/A |
| Our performance audit methodology reflects good practice for undertaking such audits as assessed every second year by the National Audit Office of Australia through a review of two of our performance audits. The next review is scheduled for 2008/09. (New measure in 2007/08.) |
N/A | N/A |
| 2008/09 Measures and forecast standards of output delivery | 2006/07 Actual |
2005/06 Actual |
| Each year, independent external reviews of two performance audits are undertaken. These reviews confirm the quality of these reports in terms of: the sufficiency of administrative and management content; the report structure, presentation, and format (including use of graphics and statistics); the rigour of the methodology used; and the balance, reasonableness, and practicality of the resulting conclusions and recommendations.§ (New measure in 2007/08.) | N/A | N/A |
| Internal quality assurance reviews on selected performance audit reports confirm that reports are prepared in keeping with the performance audit methodology. §§ | Achieved | N/A |
* It is not always possible for us to complete the full range of work that we propose. This is because entities may have initiated their own internal or independent reviews or are undergoing legislative or structural change, detailed project development shows that our initial proposal needs to be amended, and/or other events happen that change the Auditor-General’s priorities.
** We assess these measures through our Stakeholder Survey. Appendix 3 provides further information about the method used for this survey.
§ An independent Audit and Risk Committee selects the two performance audit reports to be externally reviewed.
§§ The nature, extent, and frequency of the quality assurance review is determined based on risk. The review is carried out during a three-year period.
Inquiries
The Auditor-General has the discretion to inquire into a public entity’s use of resources. The Auditor-General can carry out inquiries on his own initiative and when correspondence from the public draws his attention to potential issues. A few such issues lead to major inquiries. We also administer the Local Authorities (Members’ Interests) Act 1968, which governs the financial interests of members of local authorities.
Each year we usually receive:
- 200 to 300 external requests for inquiries; and
- 50 to 100 enquiries under the Local Authorities (Members’ Interests) Act.
Our inquiries manual establishes the process for, and priority for dealing with, requests for inquiries and for carrying out inquiries.
We carefully consider each request to determine the most appropriate way to proceed. Factors we consider include whether the Auditor-General is the appropriate authority to consider the issues, whether we have the resources to do so, and the seriousness of the issues raised.
In some cases, we are unable to look at the issues at all - for example, because the entity in question is outside our mandate. We will advise a correspondent promptly when this is the case.
Depending on how serious the issues raised are, we classify inquiries into three categories: routine, sensitive, and major. A routine inquiry involves straightforward issues, and can often be carried out either by a review of documents or through correspondence or discussion with the public entity. It will not usually result in a published report. We always advise the correspondent of our conclusions and the reasons for them, and in some instances will advise the public entity of the matter.
Sensitive and major inquiries involve more complex issues and may attract a broader level of public interest and attention. In these inquiries, we will often review files from the entity and may also formally interview people. We may report the results of these inquiries publicly, as well as advising the correspondent and the entity.
Measuring our performance for output Inquiries
| 2008-11 Main measures and standards of impacts | 2006/07 Actual |
2005/06 Actual |
|---|---|---|
| Entities take action in response to concerns identified in inquiry reports as assessed by follow-up on a sample of sensitive and major inquiries undertaken in the previous year. (New measure in 2007/08.) | N/A | N/A |
| 2008/09 Measures and forecast standards of output delivery | 2006/07 Actual |
2005/06 Actual |
| Our findings on inquiries are reported to the relevant parties within three months for 80% of “routine” inquiries, within six months for 80% of “sensitive” inquiries, and within 12 months for 80% of “major” inquiries. | 95% for the 76 routine received. One sensitive inquiry and no major inquiries were received. | N/A |
| For inquiries under the Local Authorities (Members’ Interests) Act 1968, we complete 80% within 30 working days. | 87% | 86% |
| Responses to requests for inquiries, and our administering of the Local Authorities (Members’ Interests) Act 1968 requests, is in accordance with relevant policies, procedures, and standards as confirmed by internal quality assurance review.* | Achieved | Achieved |
* The nature, extent, and frequency of the quality assurance review is determined based on risk. The review is carried out during a three-year period.
The Vote estimate for the Performance audits and inquiries output class in 2008/09 is $6.587 million.
1: Material is defined in AS-702: The Audit Report on an Attest Audit as:
A statement, fact, or item that is of such a nature or amount that its disclosure, or the method of treating it, given full consideration of the circumstances applying at the time the written assertion or set of assertions is completed, has the potential to influence users of the audit subject matter in making decisions or assessments.