Central government: Results of the 2008/09 audits.

This report is in four sections.

Section 1 provides an overview of the results of our audits in the central government sector for 2008/09.

The audit of the financial statements of the Government is the most significant audit we carry out. The Treasury managed the consolidation and preparation of the statements to a good standard, and we issued an unqualified audit opinion. Several of the issues from previous audits had been addressed.

An important new issue in the latest audit related to long-term insurance and retirement plan liabilities. There was a significant difference in the long-term discount rates that different entities used to value those liabilities. This led to the Treasury, as a short-term solution, directing the Government Actuary to use a particular discount rate to recalculate the retirement plan liability at 30 June 2009 for the Government's financial statements. We concluded, after much effort, that the discount rates used were acceptable. However, closer monitoring (as we had recommended in our 2007/08 audit) would have identified the issues with the rates earlier, and might have enabled a long-term solution to be found.

In our annual audits, we typically assess each entity's management control environment and financial information systems and controls. Generally, we were pleased with the results for 2008/09. More than 90% of entities were graded either "very good" (they did not need to improve their management control environment) or "good" (they could make beneficial improvements). The results for entities' financial information systems and controls were similar. District health boards (DHBs), however, continue to be over-represented in the lower grades.

The results for service performance reports and associated systems and controls – graded for the first time in the 2008/09 audits – were more mixed. We observed that the quality of such systems and controls varied widely between entities. The audit results suggest that most entities need to make improvements. As we discuss in Section 2, we are working closely with entities to progress improvements in service performance reporting.

Auditing entities' compliance with authority for expenditure is also important for us. Although there are several mechanisms the Executive can use to authorise expenditure, we continue to see government departments incur expenditure without authority. Government departments need to have effective procedures in place to ensure that their spending is within the appropriate bounds, and to seek relevant authority or approval promptly.

For completeness, we have included an explanation of the non-standard audit reports we issued last year. These are audit reports that contain a qualified opinion and/or an explanatory paragraph.

Section 2 briefly sets out our intentions for improving service performance information and reporting. We consider that improving information and reporting is crucial in helping public entities demonstrate their performance. We recognise the challenges in this area, and are working closely with the Treasury and public entities to achieve improvement.

Section 3 considers audit-related issues affecting DHBs. In 2008/09, our audits focused on procurement policies and practices, and non-financial performance reporting. We found negligible improvement in procurement policies in the sector since our 2007/08 audits. Although the risk management policy component has improved, there is room for every aspect of procurement policies to improve further. We continue to be concerned about the number of deficiencies in all aspects of DHB procurement practices.

We also looked at DHBs' service performance information and associated systems and controls. The DHBs' 2009–2012 Statements of Intent are not as well developed as similar documents elsewhere in the public sector, so we graded all DHBs as "poor/needs improvement". The sector is doing a lot of work on its accountability documents and the accountability framework. However, we are concerned that the poor quality of the external performance reports might reflect more serious, underlying problems with the health sector accountability framework and, possibly, the planning and management arrangements for DHBs' services. Accordingly, we have set out some recommendations for the Ministry of Health and the wider health sector.

Section 4 considers audit-related issues affecting the education sector. For the 2008 tertiary education institution (TEI) audits, audit arrears increased when compared to the previous two years, mainly due to the timeliness of subsidiary audits. We are working closely with TEIs during the 2009 audits to help bring any subsidiary audit arrears up to date. This will help the timely completion of all TEI sector audits.

As in 2007, we focused in 2008 on procurement policies and capital asset management. Although some TEIs had procurement policies in place that reflected our previous recommendations and were in line with good public sector practice, overall the sector's progress was disappointing. Most TEIs have made some progress in improving the quality of their capital asset management planning, but they still have much work to do to raise standards to a level comparable with wider good public sector practice.

In 2008/09, we saw some improvement in integrated schools' accountability for public funding. We have previously reported to Parliament that the financial boundaries between Boards and proprietors in integrated schools had become blurred. Some Boards had used their general public funding for capital expenditure, which is the financial responsibility of the proprietors. Recent work by the Ministry of Education has reduced the possibility that public funds intended for the Board's general operating expenses can be misspent on costs associated with land or buildings owned by proprietors.

We have noticed common governance, financial management, and operating issues arising in recent audits of Māori immersion schools. The Ministry of Education has work under way that could address many of the issues we have identified. We consider there is scope for these schools to improve their practices. We will be considering what further work we might do after we complete the 2009 audits of all schools.

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