Part 2: Forecast Statement of service performance
Our output classes and outputs within these classes are:
- Audit and assurance services
- Supporting accountability to Parliament
- Parliamentary services
- Controller function
- Performance audits and inquiries
- performance audits
- inquiries.
For comparative purposes, we have provided actual achievements against measures and standards for 2006/07 and 2007/08. As information is not yet available in most instances for 2008/09, we have not given actual achievements for that year. The measures and standards are substantively the same as those for 2008/09.
Output class: Audit and assurance services
In 2007/08, annual audits and other assurance services accounted for 87% of our total expenditure.
The major portion of the output class relates to annual audits, delivery of which is supported by several key processes, including:
- appointing auditors and monitoring audit fees;
- setting the Auditor-General’s auditing standards and contributing to the development and maintenance of professional standards;
- maintaining auditor independence; and
- quality assurance of annual audits.
There are two main products from an annual audit:
- the audit report; and
- the management report
plus, for some public entities:
- a financial review report.
The audit report is addressed to the readers of the financial statements and performance information. It provides the auditor’s independent opinion (the audit opinion) on whether the financial statements and performance information fairly reflect the public entity’s performance and financial position. If the financial statements fairly reflect the public entity’s financial performance and position and, where applicable, service performance information, the auditor issues 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 issues an audit report with a qualified opinion.
The management report is addressed to the governing body or the senior management of public entities. It sets out any significant issues identified by the auditor during the audit and provides recommendations for improving the public entity’s controls, systems, and processes.
Where public entities are subject to financial review by select committees, we report the results of annual audits to responsible Ministers and select committees. The report includes a grading for public entities, based on our assessment of their management control environment, and financial and service performance (where required) systems and controls.
Appointing auditors and monitoring audit fees
The Auditor-General appoints auditors to carry out the annual audits of public entities on his behalf. He appoints auditors from a group of about 50 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 between the appointed auditor and the public entity. We also 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, while being set at a level that provides a fair return to the auditors for the work required by them to meet the Auditor-General’s auditing standards.
Quality assurance of annual audits
Because the Auditor-General is responsible for auditing all public entities, we 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 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.
Measuring our performance for Output class: Audit and assurance services
| Main impact measures and standards for 2009/10 | 2007/08 Actual |
2006/07 Actual |
|---|---|---|
| The number of audited financial reports issued for public entities within the statutory time frame is improved (or at least maintained), compared to each of the previous two years. | Total audits due for completion: 3946 Percentage on time: 78% |
Total audits due for completion: 3949 Percentage on time: 83% |
| The number of audited financial reports for public entities that contain qualified audit opinions is reduced (or at least maintained), compared to each of the previous two years. | Total qualified opinions: 91 or 2.3% | Total qualified opinions: 96 or 2.4% |
| Public entities’ acceptance of Audit New Zealand’s management report recommendations is improved (or at least maintained), measured against each of the previous two years.2 | Accepted: 72% Rejected: 4% Noted, under consideration, or not responded to: 24% |
Accepted: 64% Rejected: 1% Noted, under consideration, or not responded to: 35% |
| Central government entities’ management control environment, financial information and service performance3 information systems and controls are improved (or at least maintained), measured against each of the previous two years. | Management Control Environment: Very good: 38% Good: 51% Needs improvement: 11% Poor: 0% Financial systems and controls: Very good: 21% Good: 68% Needs improvement: 11% Poor: 0% |
Not applicable – benchmark data was collected in 2007. |
| Measures and standards of output delivery for 2009/10 | 2007/08 Actual |
2006/07 Actual |
|---|---|---|
| Less than 10% of the outstanding audit reports at 30 June 2010 are because of inaction on our part. | Total arrears at 30 June: 453 55% due to inaction on our part. |
Total arrears at 30 June: 362 51% due to inaction on our part. |
| All management reports are issued within six weeks of issuing the audit report. weeks. | 93% issued within six weeks. | 95% issued within six |
| Client satisfaction survey results show that, overall, 75% of respondents are satisfied with the quality of audit work (including the expertise of staff and the quality of a public entity’s relationship with their audit service provider). | On a scale of 1 to 10, 75% of respondents gave overall service ratings of 7 or greater. | On a scale of 1 to 10, 68% of respondents gave overall service ratings of 7 or greater. |
| 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. | All completed. 93% achieved satisfactory or better. | All completed. 84% achieved satisfactory or better. |
| An annual independent review of our processes confirms the probity and objectivity of the methods and systems that we use to allocate and tender audits, and monitor the reasonableness of audit fees. | Review carried out and confirmation provided. | Review carried out and confirmation provided. |
| The Officers of Parliament Committee accepts any significant proposals for an appropriation increase in audit fees and expenses. | No significant proposal made for an appropriation increase in audit fees and expenses. | Not applicable – new measure for 2007/08. |
The Vote estimate for the Audit and assurance services output class in 2009/10 is $62.878 million.
Output class: Supporting accountability to Parliament
This output class includes two outputs:
- Parliamentary services – providing advice and assistance to select committees and other stakeholders; and
- Controller function – carrying out the Controller function.
Parliamentary services – advice and assistance
Through our annual audits, performance audits, and inquiries, the Auditor-General has a broad overview of public entities – individually and throughout sectors. Through our services to Parliament, 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 assist them in their work to improve the performance and accountability of public entities.
The main ways in which this advice and assistance occurs is through:
- reports and advice to select committees to assist their financial reviews of government departments and Offices of Parliament, State-owned enterprises, and Crown entities;
- reports and advice to select committees to assist their examination of the Estimates of Appropriations; and
- reports to responsible Ministers on the results of the annual audits.
We also provide advice and assistance through:
- reports to Parliament and other constituencies on matters arising from our annual audits (including tabling two reports in Parliament on the results of our audits in central and local government);
- responding to requests and participating in working parties on matters related to financial management and accountability with other stakeholders, including government departments, central agencies, local authorities, professional bodies, sector organisations, and other public entities; and
- working with Auditors-General in other countries to encourage, promote, and advance co-operation in the field of public audit. This includes our role as Secretariat of the Pacific Association of Supreme Audit Institutions (PASAI), being a member of various committees of the International Organisation of Supreme Audit Institutions (INTOSAI), and being executing agent for the Pacific Regional Audit Initiative (funded by the Asian Development Bank, with co-financing from the Japan Special Fund and the Government of Australia).
Measuring our performance for Output class: Supporting accountability to Parliament (Parliamentary services)
| Main impact measure and standard for 2009/10 | 2007/08 Actual |
2006/07 Actual |
|---|---|---|
| Select committees confirm that our advice assists them in Estimates of Appropriation and financial review examinations. | 100% of respondents rated us 4 or better on a scale of 1 to 5 as assessed through our stakeholder survey. | 86% of respondents rated us 4 or better on a scale of 1 to 5 as assessed through our stakeholder survey. |
| Measures and standards of output delivery for 2009/10 | 2007/08 Actual |
2006/07 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 reviews, Estimates, and Ministerial reports confirms that they meet relevant standards and procedures, including that reports are consistent in their framework and approach and are peer reviewed in draft.* | Confirmed by internal review of a sample of reports. | Confirmed by internal review of a sample of reports. |
| At least 85% of select committee members who we survey rate the advice they receive from us as 4 or better on a scale of 1 to 5 for quality and usefulness. | Quality: 80% Usefulness: 83% |
Quality: 100% Usefulness: 86% |
| At least 85% of other stakeholders who we survey rate the advice they receive from us as 4 or better on a scale of 1 to 5 for relevance and usefulness. | 100% | 100% |
* 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 Controller function
The Controller function of the Controller and Auditor-General provides independent assurance to Parliament that expenses and capital expenditure of government departments and Offices of Parliament have been incurred for purposes that are lawful and within the scope, amount, and period of the appropriation or other authority.
The OAG and appointed auditors carry out standard procedures to give effect to the Controller function in keeping with the Auditor-General’s auditing standards and a Memorandum of Understanding with the Treasury. This involves reviewing monthly reports provided by the Treasury, and advising the Treasury of any issues arising and the action to be taken.
Each year, we report to Parliament on the significant issues arising from the operation of the Controller function.
Measuring our performance for Output class: Supporting accountability to Parliament (Controller function)
| Main impact measure and standard for 2009/10 | 2007/08 Actual |
2006/07 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. | The operation of the monthly Controller process and the appropriation audit were carried out to ensure that this measure was achieved. | New measure for 2007/08. |
| Measures and standards of output delivery for 2009/10 | 2007/08 Actual |
2006/07 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. | All monthly procedures have been followed, and agreed time frames achieved. | All monthly procedures have been followed, and agreed time frames achieved. |
| Internal quality assurance is conducted to gain assurance that our policies, procedures, and standards in relation to the Controller function have been applied appropriately.* | Review to be carried out in the first quarter of 2008/09, at the end of Controller function work for 2007/08. | An internal review carried out in May 2007 confirmed that the design of the work to address the Controller function and appropriation audit is appropriate. |
* 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 2009/10 is $2.460 million.
Output class: Performance audits and inquiries
This output class includes two outputs:
- Performance audits and other studies – reporting to Parliament and other constituencies on matters arising from performance audits and other studies, including good practice guides; and
- Inquiries – carrying out and reporting on inquiries relating to central and local government entities.
Performance audits and other studies
A performance audit is a significant and in-depth audit covering issues of effectiveness and efficiency. It provides Parliament with assurance about specific issues or programmes and how well these are managed by the relevant public entity or entities. We also do other studies that may result in published good practice guidance on topical issues of public sector accountability and performance to assist public entities to better manage these issues.
To select performance audits and studies, each year we scan our environment, identify issues and assess risk, and identify our assurance response, to help 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);
- major expenditure including service delivery expenditure (focusing on health, education, and social security and welfare).
Guided by these core areas of interest, we identify areas within or common to public entities or sectors that warrant further examination. To assign priorities to these assurance interventions, we consider the:
- severity and significance of the issue;
- benefit to the public;
- extent to which the performance of the public entity or sector could be improved; and
- fit with the Auditor-General’s role and mandate.
We consult with Parliament and other stakeholders through our draft annual plan and the preliminary early draft of our work programme to ensure that we are addressing the issues of greatest relevance.
Measuring our performance for Output class: Performance audits and inquiries (Performance audits and other studies)
| Main impact measure and standard for 2009/10 | 2007/08 Actual |
2006/07 Actual |
|---|---|---|
| Public entities accept or respond to the recommendations made in our performance audits, as assessed by internal review of the reports of performance audits published in the previous calendar year. Results of this review are presented to the Officers of Parliament Committee. | Three performance audit reports were selected for review by our Audit and Risk Committee and the results were presented to the Officers of Parliament Committee. The review concluded that our recommendations had been accepted by the relevant public entities and either had been implemented or were being implemented. | Three performance audit reports were selected for review by our Audit and Risk Committee and the results were presented to the Officers of Parliament Committee. The review concluded that, for two of the performance audits, our recommendations had been accepted by the relevant public entities, and, for the third, some of our recommendations had been accepted. The accepted recommendations were being implemented at the time of our review. |
| Measures and standards of output delivery for 2009/10 | 2007/08 Actual |
2006/07 Actual |
| We complete 19 to 21 reports on matters arising from performance audits and other studies, and inquiries. | 22 | 20 |
| Select committees and other stakeholders are satisfied with the proposed work programme of performance audits (as indicated by feedback on our draft annual work programme). | Feedback was sought on two occasions under section 36(1) of the Public Audit Act 2001. Feedback mainly supported the approach we took to the proposed work programme and gave us guidance on the scope and relative emphasis we should place on one or two key studies. | Feedback was sought on two occasions under section 36(1) of the Public Audit Act 2001. Feedback mainly supported the approach we took to the proposed work programme and gave us guidance on the scope and relative emphasis we should place on one or two key studies. |
| At least 85% of the stakeholders that we survey rate our performance audit reports (relevant to their sector or interest), as 4 or better on a scale of 1 to 5 for quality and usefulness. | Quality: 50% Usefulness: 66% |
Quality: 100% Usefulness: 86% |
| Our performance audit methodology reflects good practice for carrying out such audits, as assessed every second year by the National Audit Office of Australia. | The next review is scheduled for 2008/09. | The National Audit Office of Australia reviewed two performance audits looking at all aspects of the audit process, and endorsed the quality of the two audits. |
| Each year, two performance audit reports are independently reviewed. These reviews confirm the quality of the reports in terms of the presentation of administrative and management context, report structure, presentation, and format (including use of graphics and statistics), and the reasonableness of the methodology used and the resulting conclusions and recommendations. | Independent reviews of two performance audit reports confirmed the quality of the reports. | Independent reviews of two performance audit reports confirmed the quality of the reports. |
| Internal quality assurance reviews on selected performance audit reports confirm that reports are prepared in keeping with the performance audit methodology.* | Internal review confirmed that appropriate systems and controls are in place and that reports are prepared in keeping with the performance audit methodology. | Internal review confirmed that appropriate systems and controls are in place. |
* 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
General requests for inquiries
The Auditor-General has 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 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.
We classify inquiries into three categories – routine, sensitive, and major – depending on how serious the issues raised are. A routine inquiry involves straightforward issues, and can often be carried out either by a review of documents or through correspondence and 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 we 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 the public entity’s files and may also formally interview people. We may report the results of these inquiries publicly, as well as advising the correspondent and the public entity.
Measuring our performance for output class: Performance audits and inquiries (Inquiries)
| Main impact measure and standard for 2009/10 | 2007/08 Actual |
2006/07 Actual |
|---|---|---|
| Public entities take action in response to concerns identified in inquiry reports, as assessed by our follow-up on a sample of sensitive and major inquiries carried out in the previous year. | We have followed up the one sensitive inquiry that was carried out in 2006/07 (there were no major inquiries). The public entity has taken positive steps to address the comments we made. | New measure for 2007/08. |
| Measures and standards of output delivery for 2009/10 | 2007/08 Actual |
2006/07 Actual |
| 80% of our findings on inquiries are reported to the relevant parties within: | ||
|
91% (115 routine inquiries, 105 reported within three months). | 95% (80 routine inquiries, 76 reported within three months). |
|
82% (11 sensitive inquiries, 9 reported within six months). | 0% (one sensitive inquiry, not reported within six months). |
|
No major inquiries were carried out. | No major inquiries were carried out. |
| We complete 80% of enquiries under the Local Authorities (Members’ Interests) Act 1968 within 30 working days. | 95% (103 received, 98 reported within 30 working days). | 87% (47 received, 41 reported within 30 working days). |
| Responses to requests for inquiries and our administering of the Local Authorities (Members’ Interests) Act 1968 are carried out in keeping with relevant policies, procedures, and standards, as confirmed by internal quality assurance review.* | Review was completed and confirmed that requests are carried out in keeping with relevant policies, procedures, and standards. | Review was completed and confirmed that requests are carried out in keeping with relevant policies, procedures, and standards. |
* 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 2009/10 is $6.587 million.
1: “Material” is defined in the New Zealand Institute of Chartered Accountants auditing standard AS-702: The Audit Report on an Attest Audit as: “a statement, fact or item is material if it is of such a nature or amount that its disclosure, or the method of treating it, give 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.”
2: We are looking to extend this measure to other audit service providers in future years.
3: Service performance information and associated systems and controls were not graded for 2007/08 or 2006/07.
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