Effectiveness of the New Zealand Debt Management Office

Performance audits from 2007: Follow-up report.

The New Zealand Debt Management Office (NZDMO) manages the Crown’s debt and associated financial assets within an appropriate risk management framework. Its broader responsibilities include providing capital market advice and financial transaction services to other Crown agencies. It operates as a separate unit within the Treasury, under the authority of the Minister of Finance.

The scope of our audit

Our audit aimed to find out how well NZDMO manages the Crown’s public debt and financial asset portfolios. We focused on the following areas:

  • the Crown’s balance sheet and the role of NZDMO;
  • assurance mechanisms used for governance;
  • debt management in the strategic portfolio;
  • debt management in the tactical portfolio;
  • use of derivatives;
  • internal systems; and
  • personnel risks.

Our findings

There were no fundamental concerns with NZDMO’s performance. However, we did identify some opportunities for improving governance, risk management, portfolio management policy, and performance reporting. We made 19 recommendations for change.

The response to our findings and recommendations

Of the 19 recommendations, NZDMO agreed to fully carry out 12, and partially carry out or consider five. It disagreed with two.

Five of the 12 recommendations that NZDMO agreed to fully carry out involved making changes to its Portfolio Management Policy (PMP). These changes will occur during a major PMP review, which NZDMO expects to complete in the first half of 2009.

A further four recommendations that NZDMO agreed to fully carry out involved changes to methodology. A new approach introduced by NZDMO has addressed two recommendations: one relating to NZDMO’s market risk model, and the other to managing specific risk types within its tactical portfolio. The other two recommendations, including one about NZDMO’s credit risk methodology, have not yet been put in place.

NZDMO also agreed to fully carry out three further recommendations – one about its internal and external reporting, one clarifying the role of its Risk Management Steering Group, and one about how it reviews its delegations. These recommendations will form part of planned NZDMO reviews in each of these areas.

Of the five recommendations NZDMO agreed to partially put in place or consider, two related to changes to methodology, two to improving its internal and external reporting, and one to a change in the PMP. Because most of these recommendations rely on changes already under way at NZDMO (for example, carrying out our other recommendations), they will be considered once the other changes have been made.

One recommendation that NZDMO partially agreed to (relating to external reporting) involved refining its risk-adjusted performance measure. We consider the NZDMO still needs to review the measure’s appropriateness and consider alternatives.

NZDMO disagreed with our two recommendations about risk management practices. NZDMO considers that the risks covered by our recommendations are already managed. We still take the view that the two recommendations are relevant and could assist NZDMO to better manage some of its risks.

NZDMO intends updating us on its progress towards carrying out our recommendations. This is expected to happen early in 2009. We will continue monitoring NZDMO’s progress, and expect good progress to be made in 2009.

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