Part 1: Introduction

How government departments monitor Crown entities.

1.1
In this Part, we discuss:

Governance and monitoring of Crown entities

What is a Crown entity?

1.2
Crown entities are bodies established by statute to be responsible for carrying out important public services or functions. They are funded in a variety of ways, but often receive some public money. Some Crown entities are responsible for publicly owned assets.

1.3
There are five categories of Crown entities.1 In this report we comment only on the statutory entity category – that is, autonomous Crown entities, Crown agents, and independent Crown entities. When we use the term “Crown entity” in this report, we are referring only to statutory entities.

Governance arrangements for Crown entities

1.4
The Crown Entities Act 2004 (the Act) provides a framework for establishing, governing, and monitoring Crown entities.

1.5
Each Crown entity has a board (or equivalent) and a responsible Minister – both have responsibilities under the Act. Appendix 1 shows the governance arrangements for Crown entities, including some responsibilities that the Crown entity and the responsible Minister have under the Act.

The role of the monitoring department

1.6
The responsible Minister may ask a department to do work to support them in carrying out their functions and duties in relation to a Crown entity, including ensuring that they meet their statutory obligations. In this case, the department is usually referred to as a monitoring department in respect of this work, and the work it carries out is referred to in this report as monitoring work.

1.7
Monitoring work 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 entity’s board), scanning for emerging issues or risks that might require response, and day-to-day work (such as monitoring the entity’s performance, reviewing the entity’s financial planning, and carrying out board appointment processes).

1.8
In 2007, the Treasury published information2 that showed that 15 departments monitored 83 Crown entities. In a few cases, a Crown entity was monitored by more than one department. Fourteen of the departments monitored one to nine Crown entities. The Ministry of Health monitored 29 Crown entities. Twenty-one of these were district health boards.

The purpose of our audit

1.9
Crown entities can be significant within a Minister’s portfolio, particularly when the level of public funding and the entity’s functions and services are taken into account. Ministers rely on monitoring departments to provide advice about many aspects of an entity’s performance, and to support them in their role as responsible Minister.

1.10
The role of Crown entities in the machinery of government, and their accountability through Ministers to Parliament, has long been a matter of debate and concern. Legislative reform was carried out in 2004, with the passage of the Act, to improve the governance and accountability of Crown entities. This was accompanied by a renewed focus on the role of the monitoring department, resulting in the Treasury and the State Services Commission (SSC) producing guidelines on the work that departments should be doing.

1.11
Four years after the Act was passed, we wanted to know how well departments were supporting Ministers in carrying out monitoring activities.

1.12
We carried out a performance audit to provide assurance that selected monitoring departments have effective mechanisms to support responsible Ministers with their responsibilities for Crown entities, including their specific functions under the Act.

1.13
The departments we selected were the Department of Internal Affairs (DIA), the Ministry for Culture and Heritage (MCH), and the Ministry of Economic Development (MED). In this report we refer to these three agencies as “the departments”.

1.14
Appendix 2 sets out information about the departments, including the Crown entities they are responsible for monitoring.

1.15
The main areas our audit looked at were the roles and responsibilities for Ministers, Crown entities, and monitoring departments and how the departments:

  • identified issues and risks for the Crown entities;
  • planned and provided guidance for monitoring activities;
  • reviewed the financial planning of Crown entities;
  • provided advice on the statements of intent (SOI) for Crown entities;
  • reviewed and reported on the performance of Crown entities; and
  • carried out board appointments processes.

Our audit expectations

1.16
We prepared detailed audit expectations. These were closely aligned with guidance in a Cabinet Circular3 and in the Treasury and SSC document Guidance to Departments in Relation to Crown Entities. Our audit expectations related to the main areas for our audit (see paragraph 1.15).

How we carried out the audit

1.17
We assessed each of the three selected departments against our audit expectations. We did this by selecting some of the Crown entities that each department is responsible for monitoring. We selected 10 Crown entities – four monitored by MCH, four monitored by MED, and two monitored by DIA. Appendix 3 sets out information about the 10 Crown entities we selected.

1.18
For each Crown entity we:

  • interviewed the department’s staff with monitoring responsibility;
  • met with the Crown entity’s chairperson, chief executive, and/or their nominated representative;
  • met with, or sought comments from, a staff member from the responsible Minister’s office; and
  • reviewed the department’s monitoring documents for the entity.

1.19
We also met with staff from the Treasury and SSC, who oversaw aspects of each department’s monitoring activities.

What we did not audit

1.20
We did not review how the departments carried out their policy work. We did not review the monitoring of any other Crown entities or the work of other monitoring departments.

1.21
We did not review how well the boards of Crown entities were carrying out governance activities, or how well individual Crown entities were performing.

1.22
We did not assess whether the departments met detailed guidance prepared by other agencies. For example, we did not assess whether departments met the requirements of the Board Appointment and Induction Guidelines.4

1: The categories are: statutory entities, Crown entity companies, Crown entity subsidiaries, school boards of trustees, and tertiary education institutions.

2: The Treasury (2007), Financial Obligations in the Crown Entities Act 2004: Application to Crown Entities and PFA Schedule 4 Organisations (v1.2).

3: Department of the Prime Minister and Cabinet (2006), CO (06) 5, Ministers’ Roles and Responsibilities in Relation to Crown Entities.

4: State Services Commission (2006), Board Appointment and Induction Guidelines.

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