Appendix 2: Areas of strategic focus for the Auditor-General

Annual plan 2009/10.

The Auditor-General has identified areas of key concern within his mandate about which he wishes to give particular assurance to Parliament and the public. These areas have been selected because they are “hard” issues and risks for the public sector. They include areas where the Auditor-General considers that public sector performance must be improved, affecting both central and local government and applying across a range of our interventions. Work in these areas will help us to achieve our strategic intentions of better deploying our interventions and extending the depth and breadth of our annual audits.

The “hard” and cross-cutting nature of these concerns means that work will generally involve multiple initiatives during two or more years. During 2009/10, the areas of strategic focus for the Auditor-General are:

Initiatives around these strategic areas of focus are likely to result in external products (such as reports to Parliament) and internal development and process improvements, and will also be the significant areas of focus within the Office’s research and development programme.

Procurement management

The way in which public entities manage procurement processes has been an increasingly significant area of public concern in recent years. There have been several high profile court cases about public sector procurement processes, and our consultation with stakeholders has also identified procurement as a topic that the Office should focus on. The Auditor-General has responded by increasing the focus on this topic across the broad range of our activities during the last two years. Procurement issues are regularly raised with us in requests for inquiries, and providing assurance around procurement processes is a major part of the work of the Specialist Assurance Service team in Audit New Zealand. We have begun a systematic examination of procurement policies and practices for central government entities in our annual audit work, and a series of performance audits to look at the way public entities approach their procurement responsibilities. We have also produced two new good practice guides on procurement and on managing funding arrangements more generally.

We intend to continue to deepen our focus on this topic in the coming year, through a range of activities. The precise mix will be determined once we have been able to analyse the results of this year’s audit work, but it is likely that we will extend our review through annual audits to other sectors and that we will continue with our programme of performance audits. We expect procurement to continue to be a major part of our inquiry work, particularly major infrastructure and construction projects by local authorities. We are also working with the Ministry of Economic Development and other organisations to promote and explain the good practice principles in our guidance material.

Service performance information

Last year, in a review of two years’ work across a range of public entities, we reported that, overall, we are disappointed by the poor quality of non-financial performance reporting by public entities. This reporting needs to improve significantly to allow Parliament and the public to hold public entities accountable for their use of taxes and rates, and for the effectiveness of their service delivery.

Performance reports should be a reflection of internal management – clearly articulating strategy, linking strategy to operational and other business plans, monitoring the delivery of operational and business plans, and evaluating strategy effects and results. If a public entity does not have performance management systems that monitor and aggregate performance information, governors and managers cannot be confident that they are fulfilling their responsibilities and that their public entity is achieving its objectives.

In our view, improving the quality of information about public entities’ performance is critical, not only for demonstrating accountability but also for achieving continuous improvement in public sector effectiveness.

We will therefore be enhancing our audit work on the reporting of performance within annual audits – in the first instance, through a revised auditing standard (AG-4). Our revised standard will be phased into audit reporting for government departments and Crown entities through management letters and Ministerial and select committee reporting, including grading of service performance information and associated systems and controls.

For local government entities, the Long-Term Council Community Plan audit addresses the forecast expectations of AG-4. We propose to include our report on the extent to which service performance reports fairly reflect a local government entity’s actual performance as part of our annual audits from the year ending 2010.

Through our revised auditing standard and a phased implementation, we hope to contribute to improving the disclosure of public entity performance, and thereby assist public entities, Parliament, Ministers, monitoring departments, and other users to better assess that performance and identify issues for improvement.

Fraud awareness and minimisation

New Zealand continues to have a high ranking as a “clean” country in the most recent Transparency International survey, and the more extreme forms of fraud or corruption are not often seen here. However, this is a reputation that is unlikely to be maintained without taking positive action and in the increasingly harsh economic conditions, there could be an increase in attempts by individuals to use public resources for personal gain. We should not be complacent about the possibility of public money being needlessly lost through fraud or corruption.

There is growing concern that, even if some forms of fraud or corruption are not prevalent in New Zealand, complacency may pose risks to New Zealand’s reputation (for example, a recent Anti-Bribery Convention report from the Organisation for Economic Co-operation and Development recommended that New Zealand strengthen its laws to combat foreign bribery).

The Auditor-General intends to increase the Office’s focus on the management of fraud risk through:

  • identifying fraud trends and patterns, and informing auditors about them; and
  • considering opportunities for raising the awareness of public entities about fraud issues by issuing good practice and other guidance material to assist public entities to detect and prevent fraud.

Stewardship and management of infrastructure assets

For some time, there has been general public concern about asset management, primarily network utility assets. We have taken an active interest in the management and stewardship of infrastructure assets for nearly two decades, including through:

  • performance audits (with several projects on asset management featuring in this proposed annual work programme);
  • annual audits (primarily in the local government sector);
  • LTCCP audits; and
  • liaison with stakeholders in the development of good practice guidance.

The Auditor-General wishes to give broader assurance and information to Parliament and the public about the state of, management of, and planning for, key infrastructure assets throughout the public sector. We propose a series of performance audits in the upcoming years using a common set of asset management expectations of public entities that extensively rely on infrastructural assets to deliver their services. In 2008/09, we are also doing the second of our three-yearly LTCCP audits and therefore expect to carry out a range of work addressing the state of asset management across key sectors.

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