Part 5: Our intentions for improving service performance information and reporting

Central government: Results of the 2008/09 audits.

In this Part, we:

  • discuss our views on service performance information and reporting;1
  • describe our recent work to improve the quality of performance information and reporting; and
  • describe our joint work programme with the Treasury to further improve the quality of performance reporting.

Our views on performance information and reporting

Our views on the importance and the quality of performance information and reporting are set out in our June 2008 discussion paper, The Auditor-General's observations on the quality of performance reporting.2 We summarise some key points below.

Why performance information and reporting is important

Performance reports are an essential part of accountability documents. Accountability documents ensure that government departments and other state sector entities can be held accountable to Parliament and the public. Parliament and the public rely on accountability documents to assess the performance of public entities and the effectiveness of public entities' use of taxes.

We consider that improving service performance information and reporting is crucial in helping to improve the effectiveness and efficiency of public sector entities and in demonstrating accountability for their performance.

Our views on the quality of performance reporting

We have, during the past few years, increased our emphasis on performance reporting and carried out in-depth reviews of selected entities' accountability documents.

We have found that the quality of performance reporting continues to be disappointing, despite public sector entities having more than 20 years of experience in preparing and using performance reports. Performance reports are:

  • not prepared as robustly as they should be to serve external readers' needs;
  • not used as well as they might be by external readers as part of the accountability process; and
  • not used as well as they might be by internal readers – managers and governors of public entities – to improve public service effectiveness.

We also found that many entities' performance reports:

  • do not set out coherent performance frameworks showing logical links from the medium-term outcomes information and organisational strategies to the annual output information; and
  • do not have well-specified, relevant, understandable, reliable, and comparable performance measures and targets.

Although there is much guidance available to help public sector entities with their performance reporting, there are no reporting standards in New Zealand for performance reporting. As a result, each entity has needed to create its own framework for performance reporting and judge which elements (outcomes and outputs) within that framework will reflect its nature. In addition, initiatives that central agencies, other sector agencies with leadership roles in the public sector, and we have taken to help improve performance reporting have often lacked co-ordination, sustained effort, and focus.

The recently appointed Auditor-General3 has been disappointed to find that performance reporting by public sector entities has improved very little in the last 15 to 20 years, despite a lot of talk and considerable effort by many. She has endorsed the Office's recent work to improve the quality of external service performance reports.

Our recent work to improve the quality of performance reporting

During the last couple of years, we have focused on improving performance information and reporting by:

  • publishing examples of better practice to help public sector entities;
  • carrying out work to improve the standards, methodology, and reporting our appointed auditors use in their audit work; and
  • developing a shared work programme with the Treasury to help improve the way the wider public sector system for performance management and accountability works.

Better practice examples

In June 2009, we published Statements of intent: Examples of reporting practice.4 This discussion paper gives examples of reporting practice drawn from the 2008/11 statements of intent of government departments and Crown entities. Although the examples reflect better practice at that time, there is still room for further improvement in service performance reports.

Revised auditing standard

During 2008/09, we reviewed and began updating our approach to auditing performance information and reporting. We consulted on, and finalised, a revision of the Auditor-General's standard on auditing performance information, AG-4. We refer to the new standard as AG-4 (Revised).5

The previous auditing standard required auditors to attest to whether the statement of service performance fairly reflected the standards of service delivery compared with forecast standards in the statement of service performance. The most significant change in the revised standard is that auditors will be required to attest to whether the statement of service performance fairly reflects actual service performance for the year. This is a subtle but important change, which – in essence – requires the auditor to form an opinion on whether service performance is fairly reflected (instead of an opinion on whether the SSP reports faithfully against the forecast SSP).

AG-4 (Revised) reflects the increased interest in the public sector in improving the quality of external service performance reports to reflect the entity's management of performance and actual achievements.

Our joint work programme with the Treasury

We have recently developed a joint work programme with the Treasury to help ensure that our efforts to improve the quality of performance management and information are complementary and provide public entities with clear and consistent information about how they can improve.

Our joint work programme envisages improvements in the next three years in the following areas:

  • continuing to work with departments and agencies through existing and new work streams;
  • clarifying requirements, tackling some of the challenges with the current system (for example, reporting on policy advice), and looking for ways to reduce compliance costs (for small agencies in particular); and
  • enhanced audit reporting through the implementation of AG-4 (Revised).

We will be phasing in AG-4 (Revised) in the three financial years ending 30 June 2011 to 30 June 2013. We have categorised entities as A, B, or C, depending on their size (the largest entities are generally category A).6

We and the Treasury intend to work directly with all category A entities to enable auditors to apply AG-4 (Revised) to the audit of the performance information for the year ending 30 June 2011. We will carry out similar work with category B entities to apply AG-4 (Revised) for the year ending 30 June 2012, and for category C entities and district health boards for the year ending 30 June 2013.

Through this work programme with the entities within each category, we expect to give a comprehensive external perspective on the current state of their performance information. We expect to better understand their concerns with their information and its preparation. We also expect to help identify areas for improvement (by drawing on our observations of better practice), and to provide support for, and feedback on, improvements that might be made immediately and in the longer term.

It is important to note that public sector entities are ultimately responsible, as the preparers, for their accountability plans and reports. Our work is intended to help with ensuring that plans and reports are a good reflection of internal management and achievements, while meeting the principles of good accountability that underlie the Public Finance Act 1989 and the Crown Entities Act 2004.

Throughout this joint work programme, we will continue to:

  • have our appointed auditors take an objective view of the quality of entities' performance reports;
  • report to Ministers and select committees on our assessments and grading of entities' management control environment, financial information systems, and service performance information and associated systems and controls; and
  • prepare reports identifying examples of better practice and increasingly, we expect, good practice.

Implications of AG-4 (Revised) for audit fees

We have always anticipated that improving our audit work on service performance information would have implications for audit fees. As we introduce AG-4 (Revised), we will need to ensure that we are carrying out professional and robust audit work that maintains the assurance value of the audit opinions that we issue.

We have assessed the probable effect of AG-4 (Revised) and expect that our audit work will primarily need to increase in:

  • understanding the entity and management control environment;
  • reviewing and testing the statement of service performance (SSP) systems; and
  • liaising and communicating with public entities.

We expect to increase the overall number of hours spent on auditing service performance information. The effect on audit fees of this increased audit work will vary from entity to entity. Currently, our auditors spend about 7% of their time auditing service performance information. We estimate that this may need to double for Category A and B entities. We are still analysing the implications for entities in Category C, which includes district health boards. We will continue to advise entities about what they can do to help us reduce the additional audit work that may be needed as we implement AG-4 (Revised).

We are well aware that cost changes can be very difficult for the public sector to accommodate in this economic environment. We have attempted to minimise the cost for the public sector by funding audit and focused engagement transition costs (see paragraph 5.18), and by taking a three-year implementation approach to help spread the overall impact on the public sector.

Concluding comments

The generally poor quality of current performance information and reporting means that the public sector is not able to demonstrate its achievements and to demonstrate improvements in effectiveness. There are financial and public trust implications in this inability.

Improving the quality of performance reporting will need co-operation and effort from government departments, central agencies, Crown entities and their monitoring departments, and auditors.

We recognise there are challenges that we will need to work through to get improvement, and that our Office has a key role to play. We are convinced that we can – and must – work together to meet the reasonable expectations for useful information to underpin the public sector system of accountability.

1: Service performance information provides primarily non-financial information that records the output delivery performance of a public entity against specified objectives. The information is usually shown in statements of service performance (or equivalent reports) and is compared with information contained in forecast non-financial performance reports. For ease of reading, we use the terms "performance information" and "performance reporting".

2: The Auditor-General's observations on the quality of performance reporting, June 2008, available on our website:

3: The Auditor-General, Lyn Provost, took office in October 2009.

4: Available on our website,

5: Available on our website, AG-4 (Revised) applies to local authorities and government departments, and to Crown entities that are required to prepare a statement of intent and statement of service performance under sections 139 and 150 of the Crown Entities Act 2004. This excludes the audit of service performance reports of other Crown entities (such as tertiary education institutions and those Crown entities required to prepare and report against a statement of corporate intent), where their service performance reporting requirements are governed by other legislation.

6: Entity size was assessed primarily on audit effort (hours) as a proxy for a range of factors, such as size, complexity, and risk.

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