Part 2: Background

Performance information: The importance of external reports

2.1
Performance reports are an essential part of accountability documents. Accountability documents ensure that government departments and other state sector entities are answerable to Parliament and the public. Accountability documents also ensure that local authorities and their controlled entities are held accountable to local communities. Parliament and the public rely on accountability documents to assess public entities’ performance and the effectiveness of public entities’ use of taxes and rates.

2.2
There are legislative requirements for most public entities to prepare information (in various forms) about their performance. Entities required to do this include government departments, Crown entities (including district health boards, Crown research institutes, tertiary education institutions, and schools), and local authorities and their controlled subsidiaries.

2.3
A core purpose of performance reporting is to be accountable to the public for the responsible use of public resources and regulatory powers, including demonstrating that public services are being delivered effectively and efficiently. This means reporting on performance about delivering services the entity is accountable for (output reporting), and the intended or actual effect of service delivery on society or the community (impact and outcome reporting). Entities can be accountable for their outputs only if they are transparent about both their financial and non-financial performance and the relationship between the two.

2.4
As well as supporting their accountability purpose, performance reports should reflect good management practice. This practice involves 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.

2.5
Well-considered and well-prepared reports about planned and actual progress should provide useful insights into an entity – its purposes, outcomes, and intentions, and the services it provides to achieve them.

2.6
Many public entities are required to produce forecast performance information, and to report against it in their annual report. For many entities, the information in the annual report (a statement of service performance (SSP), which reports actual results against a forecast SSP) must be audited. For a small group of public entities (almost entirely local authorities), forecast performance information must also be audited.

Our role in auditing performance reports

2.7
The Office of the Auditor-General has worked to ensure that annual audits address whether entities have met statutory requirements and complied with generally accepted accounting practice (GAAP) in reporting their performance information.

2.8
Along with the central agencies and others, we have previously reported on the information required for Parliament to hold the Executive to account, and have also provided guidance and good practice advice.

2.9
Before the changes to the Public Finance Act 1989 in 2004, and the passing of the Local Government Act 2002 and the Crown Entities Act 2004, audit work focused on verifying the SSP information. The audit would attest to the true and fair disclosure of SSP results against the measures and performance targets¹ set in the forecast SSP. However, verifying actual results against forecast results does not address the quality of the service performance information (for example, the appropriateness of the choice of subject matter, performance measures used, or performance targets set).

2.10
The legislative changes referred to in the earlier paragraph have put a greater emphasis on information about medium- and longer-term context and strategy in performance reporting. This information provides context that helps the auditors to judge the quality (and therefore the appropriateness) of performance information. It also forms the basis of, and sets the direction for, audit work and, in particular, SSP audit work. Therefore, we have been placing more emphasis on the appropriateness (that is, its relevance, whether it is understandable, its reliability, and its comparability) of forecast and historical performance reports in the SSP audit work.

1: We use the term "performance targets" in this discussion paper to refer to levels of planned performance (see the Glossary). This term is equivalent to "performance standards", as used in the Public Finance Act 1989 and the Crown Entities Act 2004.