Auditor-General's overview

This report describes how well three government departments – the Department of Internal Affairs, the Ministry for Culture and Heritage, and the Ministry of Economic Development – support Ministers in meeting their responsibilities for selected autonomous Crown entities, Crown agents, and independent Crown entities. This is the second of three reports looking at how particular categories of Crown entity are monitored.¹

Crown entities are part of the machinery of executive government for which Ministers are responsible to Parliament. They are established by statute, separate from the core government departments, to carry out a wide variety of public services and functions. They are funded in a variety of ways, but often receive some public money.

A wide range of organisations are included in the legal definition of Crown entities in the Crown Entities Act 2004 (the Act). In practice, the term “Crown entities” is commonly used to refer to the group comprising autonomous Crown entities, Crown agents, and independent Crown entities.

Ministers have broad political responsibility to Parliament and to the public for the activities of the Crown entities in their portfolios. The Act sets out the formal mechanisms that responsible Ministers can use to influence Crown entities. These include making or recommending appointments to the board of a Crown entity in their portfolio, and participating in the process of setting and monitoring the entity’s strategic direction and targets. Responsible Ministers are also usually involved in making decisions about the funding for a Crown entity. The Act specifies the extent of control the responsible Minister has over autonomous Crown entities, Crown agents, and independent Crown entities.

Typically, a government department provides support to the responsible Minister to help them manage their broad responsibility for the Crown entity and to ensure that the Minister meets their statutory obligations.

Monitoring is a mixture of broad support for the relationship between the Minister and the Crown entity (usually focused on the relationship with the chairperson of the board), scanning for emerging issues or risks that might require response, and day-to-day work (such as monitoring an entity’s performance, reviewing an entity’s financial planning, and carrying out board appointment processes).

The monitoring department will usually also have policy responsibility for the general area in which the entity works and for the legislation that establishes the entity. Therefore, the broader aspects of the department’s monitoring role will often overlap with its policy work.

Drawing on the range of guidance material and discussion about the role of Crown entities and departments in our system of government, we see the following attributes as important if a department is to be effective in its monitoring role:

• Working relationships that enable communication with the Minister, the chairperson and board of the entity, and the entity’s management. The relationships need to be strong enough to enable free and frank discussion to flow, when necessary, on emerging issues and risks. The department is often an important intermediary between the Minister and these representatives from the entities.
• Good overall sector knowledge, so that the department can alert the entity to more general issues that may affect the entity, connect the entity with other parts of the sector when necessary, and can be independently aware of emerging issues and risks. This aspect overlaps with the department’s policy responsibilities.
• Mechanisms for carrying out day-to-day work. These mechanisms should ensure that the department is able to provide the responsible Minister with timely advice to make well-informed decisions about the Crown entity and to meet their statutory obligations.

We take the view that a department that is managing its day-to-day tasks well is more likely to be able to identify and respond to risks effectively, and to be better placed to support the Minister’s general responsibility to Parliament for the entity. If a monitoring department does the basic tasks well, it is more likely to have routine information readily available and a reasonable working knowledge of the Crown entity and its challenges.

The main focus of my staff’s audit work was to examine how well the selected departments carried out their day-to-day monitoring tasks and whether they had effective systems in place to support their Minister.

This report does not comment directly on the overall quality of the working relationships that the departments had with the responsible Minister and the chairperson, board, and management of each Crown entity. However, my staff have sought views about aspects of these working relationships from the chairpersons and chief executives of 10 Crown entities that the departments monitor, and from staff from Ministers’ offices. In many cases, the views of the chairpersons and chief executives (or their representatives) of the entities are included in this report.

Our findings

Overall, the three departments were reasonably positioned to support their Ministers through their monitoring work. However, there is clear room for improvement. All three departments did some aspects of their monitoring work well, but fell short of what I expected in other aspects.

The Ministry for Culture and Heritage and the Ministry of Economic Development carried out most of the monitoring activities that I expected. However, there was room for them to improve the effectiveness or efficiency of much of their work.

The Department of Internal Affairs carried out only some of the monitoring work I expected. However, in 2008, its monitoring team started putting in place systems to help improve how they carry out monitoring work. It is likely to take some time to establish a full complement of the systems the monitoring team needs, because the team members are responsible for a significant amount of work in addition to monitoring Crown entities.

Each department had different strengths. For example, the Ministry for Culture and Heritage showed good practices in carrying out board appointment work and providing ongoing support to board members. The Ministry of Economic Development had guidance to assist monitoring staff, and recently adopted a good internal reporting practice. The Department of Internal Affairs provided clear, succinct information in its briefings to the Minister about his legislative responsibilities.

There were some common areas that the departments need to address. For example, my staff found that, although the departments carried out some reviews of the financial planning of Crown entities, they seldom had clear information about the robustness of the planning. Many Crown entities receive significant sums of public money and/or are responsible for significant public assets. It should be very clear how departments know about, or intend to check, the robustness of each entity’s financial planning, and what assurance or advice they are expected to provide to the Minister about this.

Other common areas that the departments needed to improve were:

• clarifying roles and responsibilities for monitoring each Crown entity;
• using information about issues and risks to inform their monitoring work;
• providing relevant, timely advice to Ministers about each Crown entity’s statement of intent and its financial and non-financial performance; and
• working with Crown entities on specific monitoring work, so that the work could be carried out in a timely and efficient way.

In many instances, it will be difficult for departments, on their own, to improve the way they carry out monitoring activities. Some improvements will require support and agreement from Ministers and each Crown entity’s board and management about expectations and information flows. I expect the departments to take the lead in carrying out this work, and encourage these parties to support the departments in maximising the usefulness of their monitoring activities.

Focus of our recommendations

Although this report identifies a number of areas where the departments can improve their monitoring activities, the recommendations focus on fundamental areas that one or more of the departments need to address.

Many other departments also carry out monitoring work to support Ministers. I hope that the observations and recommendations in this report will assist them in considering how to best carry out their work.

I thank the staff of the Department of Internal Affairs, the Ministry for Culture and Heritage, and the Ministry of Economic Development for providing my staff with a high level of help and co-operation during this audit. I also thank the representatives from the Crown entities, and staff from the State Services Commission, the Treasury, and Ministers’ offices for providing my staff with their views on the departments’ monitoring work.

K B Brady
Controller and Auditor-General

8 June 2009

1: In 2008, I reported on the Ministry of Education’s monitoring of school boards of trustees. The third report (planned for 2010) will cover the Tertiary Education Commission’s monitoring of tertiary education institutions.