Part 1: Introduction

1.1
The following nine Parts of this report provide an overview of the results of our audits and other work in the central government sector for 2009/10.

1.2
Here we introduce the report as a whole and describe the content of each Part.

Summary of Part 2

1.3
Part 2 discusses the audit of the financial statements of the Government, which is the most significant audit that we carry out.

1.4
The significant matters that Part 2 discusses include:

• the liability for the Retail Deposit Guarantee Scheme;
• the subsequent event disclosures about the Canterbury earthquake;
• discount rates for valuing significant liabilities of the Government;
• disclosures about related parties; and
• adjustments to the financial records of land managed by the Department of Conservation.

1.5
Other matters we have commented on include:

• the review of accounting policies for tax revenue recognition;
• accounting for the Emissions Trading Scheme;
• accounting for the Government's proposal for repairing leaky homes;
• accounting for Treaty of Waitangi settlements that include relativity clauses;
• future enhancements to the state highways valuation methodology; and
• accounting for the Kyoto Protocol.

Summary of Part 3

1.6
Part 3 reports on our 2009/10 audit results and assessments of the environment, systems, and controls of government departments, Crown research institutes, and State-owned enterprises. In our annual audits, we typically assess each public entity's management control environment and its financial systems and controls. Overall, the results for 2009/10 were pleasing. We assessed the management control environment as "very good "or "good" for 92% of government departments, 100% of Crown research institutes (CRIs), and 93% of State-owned enterprises (SOEs). We assessed the financial systems and controls as "very good "or "good" for every government department, CRI, and SOE.

1.7
Last year, we observed that the quality of service performance information and associated systems and controls varied widely between entities. We found that most entities needed to make improvements in service performance reporting, and we said that we would work closely with them to progress these improvements.

1.8
There has been a small improvement in the grades for service performance information and associated systems and controls for government departments in 2009/10 compared with 2008/09. CRIs and SOEs are not graded for service performance reporting, while the results for other Crown entities will be published early next year.

1.9
In 2008/09, we revised the Auditor-General's Auditing Standard on auditing performance information. The application of the standard is being phased in from the 2010/11 central government audits.

Summary of Part 4

1.10
Part 4 discusses the Controller function and appropriation audit. These are important aspects of the Auditor-General's work because they support the fundamental principle of Parliamentary control over government expenditure. During 2009/10, we found instances of expenditure exceeding appropriation without authority and of net assets exceeding the approved limit. Although the instances represented a decrease from the previous year (both in number and value), departments need to better understand the importance of appropriation and lawfulness, and the processes in the Public Finance Act 1989 that support them.

Summary of Part 5

1.11
Part 5 comments on the financial reporting environment in New Zealand and outlines current financial reporting issues, such as disclosures of underlying profits in annual reports, that affect some entities in central government. We are pleased that the debate on changes needed to setting financial reporting standards, particularly for the public sector, seems to be leading to a consensus that the standards need to better deal with the range of entities that report externally.

Summary of Part 6

1.12
Part 6 reports on the non-standard audit reports issued on the financial statements of public entities within our central government portfolio of audits during the ten months ended 31 October 2010. During this period, we issued 212 non-standard audit reports (out of the 3024 audit reports that we issued for entities within our central government portfolio). We record the non-standard audit reports that we issued. These are audit reports that contain a qualified opinion and/or an explanatory paragraph. Within the category of a qualified opinion, we issued two adverse opinions, two disclaimers of opinion, and 51 except-for opinions.

Summary of Part 7

1.13
Part 7 presents some background information about the 31 tertiary education institutions (TEIs) and other agencies with a role in the tertiary education sector and their operating environment. We describe how TEIs are funded and set out the results of our annual audits of TEIs for 2009. TEI financial performance improved in 2009 with an overall surplus of 4.3% of a revenue base of about $4.2 billion (2008: 2.7%). We issued 29 unqualified audit opinions and two except-for qualified audit opinions on TEI group accounts. We also found that the sector has further work to do to improve its procurement policies, its capital asset management practices, and the performance information framework used in investment plans. We will continue to focus on these matters in the 2010 audits.

Summary of Part 8

1.14
Part 8 summarises the results of a review of the additional remuneration paid to secondary school principals in the 2009 school year. Additional remuneration is a payment made above the normal salary and, in general, requires prior approval from the Ministry of Education to be lawful.

1.15
Our latest review has identified a number of specific areas where additional guidance would be useful and should help reduce the incidence of unlawful payments. The Ministry of Education has also confirmed that, ultimately, in cases of persistent non-compliance by a school board, a statutory intervention can be considered in the context of any risk to the operation of the school.

Summary of Part 9

1.16
Part 9 reports on our assessment of how well a sample of primary school boards reported on student achievement in their 2009 annual reports. Since 2003, school boards of trustees have been required to include in their annual report an analysis of variance between the board's targets for what students would achieve (as set out annually in the school's charter) and what actually happened during the year. The goal is for boards to prepare strategic plans, set targets, and report meaningfully against the targets.

1.17
We assessed how well a sample of schools reported on student achievement in the analysis of variance reports in their 2009 annual reports. We found that only 15% of schools largely meet the requirements for strategic planning and self-review. Another 72% partly met the requirements, and the remaining 13% had not met the requirements. Based on our work, we have prepared a checklist that we will send to boards for them to assess and improve on the usefulness of their analysis of variance reports.

Summary of Part 10

1.18
Part 10 summarises our inquiry work for 2008/09 and 2009/10 and also covers two major inquires that we have reported on since then. During this period, our inquiry function has come under increasing pressure. There has been an increase in the volume of requests for inquiries and in the scale and complexity of the issues we have been asked to consider.

1.19
Part 10 provides information on the number of inquiries requested and carried out. We also summarise the reports we published on our six major inquires (Plumbers, Gasfitters, and Drainage Board; NZ Defence Force payments to officers seconded to the United Nations; Certain types of expenditure in Vote Ministerial Services; How the Ministry of Education managed the 2008 national school bus transport tender process; Parliamentary and Ministerial accommodation entitlements; and Immigration matters).