Part 4: Forecast statement of service performance for each of the three years 2010/11, 2011/12, and 2012/13
Outcome
Public entities are accountable to Parliament for their use of the public resources and powers that Parliament has conferred on them. Parliament has also legislated to require independent assurance that public entities are operating, and accounting for their performance, in keeping with Parliament's intentions.
The Public Audit Act 2001 provides for the Controller and Auditor-General (the Auditor-General) to examine and provide independent assurance to Parliament and the public on matters of authority, waste, probity, performance and accountability and sets out her mandate and responsibilities.
The overall outcome that we work toward is building trust in the public sector. We assess progress toward this outcome by New Zealand's Transparency International Corruption Perception Index score over the next three years being maintained or improved. In 2009, New Zealand's score was 9.4 on a 10-point scale, and it ranked first on the index. New Zealand has achieved a high place on the index since it started in 1995.
The audit work carried out by the Auditor-General and the resulting assurance helps public entities to make improvements in their use of the resources and powers entrusted to them and in their accounting to Parliament and the public for their use of these. Therefore, within each output class, we identify the main measures and targets for the impacts of our outputs as well as with our output performance measures and targets.
Because information is not yet available in most instances for 2009/10, we have not given actual achievements for that year. Instead, for comparative purposes, we have provided actual achievements against measures and standards for 2008/09 and 2007/08.
Audits required by statute
The majority of the work of the Office (about 87%) comprises annual audits of the financial and performance reports of public entities. We carry out about 4000 such audits each year. The Auditor-General is also required to perform the Controller function and appropriation audit, to carry out audits of Long-Term Council Community Plans (LTCCPs), and to give approvals under the Local Authorities (Members' Interests) Act 1968. This work is non-discretionary.
Other reports and work performed under discretionary reporting powers
The rest of our work is done under the Auditor-General's discretionary reporting powers, with much of this work being "demand-driven", including:
- advice to Parliament and to select committees;
- responding to enquiries from ratepayers, taxpayers, and members of Parliament;
- performance audits and studies;
- working with the accounting and auditing profession;
- wider assurance work;
- international liaison and involvement;
- support and leadership for the Pacific Association of Supreme Audit Institutions; and
- advice to, and liaison with, government bodies and other agencies in the public sector.
Figure 6 shows the allocation of the Office's work between its three output classes.
Figure 6
Allocation of work between output classes
Output class: Audit and assurance services
The main purpose of an annual audit is to provide independent assurance about the fair disclosure of the financial – and in many instances non-financial – information within annual reports. An audit involves a range of procedures, tests, and management and governance enquiries to support our opinion.
In carrying out annual audits, auditors consider the legislative audit mandate, and recommendations for improvements in matters of authority, probity, performance, waste, and accountability may also be raised in our management letters to the governors and managers of public entities. We also use our annual audits to gather information and knowledge about public entities to assist us in advising Parliament and other stakeholders and to help determine the work we do in our performance audits, inquiries, and good practice guides.
A foundation for trust in the public sector is that public entities respond to their statutory public reporting obligations and to findings resulting from audits. Public entities' responses demonstrate their commitment to effective, efficient, and accountable service delivery. Therefore, the measures of intended impacts of the appropriation for this output class are as shown in Figure 7.
Figure 7
Audit and assurance services – main impact measures and standards
| 2010–13 main impact measures and standards | 2008/09 Actual | 2007/08 Actual |
|---|---|---|
| The number of public entities' audited annual reports issued within the statutory timeframe is improved (or at least maintained), measured against the previous two years. | Total audits due for completion in year: 3908 Percentage on time: 81% |
Total audits due for completion in year: 3946 Percentage on time: 78% |
| The number of public entities' audited annual reports containing qualified opinions is reduced (or at least maintained), measured against the previous two years. | Total qualified opinions: 95 or 2.4% | Total qualified opinions: 91 or 2.3% |
| Public entities' acceptance of audit service providers' management report recommendations is improved (or at least maintained), measured against the previous two years. (Note – In prior years this has been assessed against Audit New Zealand's management report recommendations.) | Accepted: 79% Rejected: 11% Noted, under consideration, or not responded to: 10% |
Accepted: 72% Rejected: 4% Noted, under consideration, or not responded to: 24% |
| Central government entities' management control environment, financial information, and service performance* information systems and controls are improved (or at least maintained), measured against the previous two years. | Management control environment:
|
Management control environment:
|
* Service performance information and associated systems and controls was graded for the first time under our new framework as part of the 2008/09 audits or with audit work carried out in 2009/10.
In 2008/09, annual audits and other assurance services accounted for 87% of our total expenditure. The major portion of the output class relates to annual audits for public entities that are required by statute to be carried out. Delivery of annual audits is supported by several key processes, including:
- appointing auditors and monitoring audit fees;
- setting the Auditor-General's auditing standards;
- maintaining auditor independence; and
- quality assurance.
There are two main products from an annual audit:
- the audit report; and
- the management report,
- plus, for some public entities:
- a financial review report.
The audit report is addressed to the readers of the financial statements and performance information. It provides the auditor's independent opinion (the audit opinion) on whether the financial statements (and, where applicable, the performance information) fairly reflect the public entity's performance and financial position. If the financial statements fairly reflect the public entity's financial performance and position (and, where applicable, service performance information), then the auditor issues an audit report with an unqualified opinion.
However, if the auditor identifies a material1 error or omission in the financial statements or performance information, the auditor issues an audit report with a qualified opinion.
The management report is addressed to the governing body or the senior management of public entities. It sets out any significant issues identified by the auditor during the audit and provides recommendations for improving the public entity's controls, systems, and processes.
Where public entities are subject to financial review by select committees, we report the results of annual audits to responsible Ministers and select committees. The report includes a grading for public entities, based on our assessment of their management control environment, and financial and service performance (where required) systems and controls. Our output measures and standards for this output class are shown in Figure 8.
Figure 8
Audit and Assurance Services – output measures and standards
| 2010/11 measures and standards of output delivery (and forecast for 2011/12 and 2012/13) | 2008/09 Actual | 2007/08 Actual |
|---|---|---|
| Less than 30% of the outstanding audit reports at 30 June 2011 are because of inaction on our part. | Total arrears at 30 June: 429 49% due to inaction on our part. |
Total arrears at 30 June: 453 55% due to inaction on our part. |
| All management reports are issued within six weeks of issuing the audit report. | 93% issued within six weeks | 93% issued within six weeks |
| No outstanding LTCCP opinions at 30 June of the year in which LTCCPs are to be adopted by local authorities are because of inaction on our part. All LTCCP management reports are issued within six weeks of issuing the LTCCP opinion. |
8% of LTCCP opinions were outstanding at 30 June 2009, one of which remained outstanding at 31 August 2009. No outstanding opinions were due to inaction on our part. 85% of management reports were issued within six weeks of issuing the LTCCP opinion. |
Not applicable – LTCCPs are required to be adopted and audited every three years. |
| Client satisfaction survey results show that, overall, 75% of respondents are satisfied with the quality of audit work (including the expertise of staff and the quality of the entities' relationships with their audit service provider). | On a scale of 1 to 10, 80% of respondents gave overall service ratings of 7 or greater. | On a scale of 1 to 10, 75% of respondents gave overall service ratings of 7 or greater. |
| Quality assurance reviews for all appointed auditors are completed during a three-year period. Of the auditors reviewed in any given year, 95% achieve a result of satisfactory or better. | All completed. 100% achieved satisfactory or better. |
All completed. 93% achieved satisfactory or better. |
| An annual independent review of our processes confirms the probity and objectivity of the methods and systems we use to allocate and tender audits, and monitor the reasonableness of audit fees. | Review undertaken and confirmation provided. | Review undertaken and confirmation provided. |
| The Officers of Parliament Committee accepts any significant proposals for an appropriation increase in audit fees and expenses. | No significant proposal made for an appropriation increase in audit fees and expenses. However, a request for an increase in appropriation of $50,000 for audits of smaller entities (Cemetery Trusts and Reserve Boards) was not accepted by the Officers of Parliament Committee. | No significant proposal made for an appropriation increase in audit fees and expenses. |
In the next three years, we will focus on:
- Implementing Ministry of Economic Development/Accounting Standards Review Board changes – We will continue to focus on contributing positively to the work of the Ministry of Economic Development and the Accounting Standards Review Board in setting and implementing appropriate standards. We will work to provide well-founded advice about the effect of International Financial Reporting Standards and other reporting options to assist the development of standards appropriate for the public sector.
- Performance measures – Included in our existing performance measures for 2009/10 is our work to issue service performance statement opinions for local authorities under our revised Auditor-General's standard for the audit of service performance reports. We will, for the second year be grading the service performance and associated systems and controls of government departments and Crown entities, and will be phasing in our revised standard during 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). 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.
- Auckland – Included in our existing performance measures for 2009/10 is the work to conduct the disestablishment audits of the eight councils that will be merged into one on 1 November 2010. The performance statements will be issued under our revised Auditor-General's standard for the audit of service performance reports and the audit of the Planning document for the new Auckland Council. In 2011/12, we will audit the financial statements for the new Auckland Council.
- Good analysis and reporting of sector information – We are carrying out work to better identify, categorise, and manage the flow of information from annual audits into our work in services to Parliament and carrying out performance audits and inquires. Our focus is to get the best from what we know and improve our understanding and reporting of sector themes.
The Vote estimate for the Audit and assurance services output class in 2010/11 is $61.855 million.
Output class: Supporting accountability to Parliament
The Office supports Parliament in holding executive government to account for its use of public resources through two outputs:
- Services to Parliament – reporting to Parliament and others as appropriate on matters arising from annual and appropriation audits, reporting to and advising select committees, and advising other agencies on the requirements of Parliamentary and related accountability systems.
- The Controller function of the Controller and Auditor-General – providing independent assurance to Parliament that expenses and capital expenditure of departments and Offices of Parliament have been incurred for purposes that are lawful and within the scope, amount, and period of the appropriation or other authority. Through this output, the Office provides for the accountability of departments and Offices of Parliament for the use of funds appropriated to them within the authority granted by Parliament.
Effectiveness, efficiency, and accountability are foundations for trust in the public sector. Therefore, the intended impacts of the appropriation for this output class are as shown in Figure 9.
Figure 9
Supporting accountability to Parliament – main impact measures and standards
| 2010–13 main impact measures and standards | 2008/09 Actual | 2007/08 Actual |
|---|---|---|
| Select committees confirm that the Office's advice assists them in Estimates of Appropriation and financial review examinations. | 100% of respondents rated us as 4 or better on a scale of 1 to 5, as assessed through our stakeholder survey. | 100% of respondents rated us as 4 or better on a scale of 1 to 5, as assessed through our stakeholder survey. |
| Expenses and capital expenditure of departments and Offices of Parliament are incurred for purposes that are lawful and within the scope, amount, and period of the appropriation or other authority. | The operation of the monthly Controller process and the appropriation audit were carried out to ensure that this measure was achieved. | The operation of the monthly Controller process and the appropriation audit were carried out to ensure that this measure was achieved. |
Services to Parliament
Through annual audit, performance audit, and inquiry work, the Auditor-General has a broad overview of public entities, both individually and throughout sectors. Through our services to Parliament, we provide advice and assistance to select committees, Ministers, and individual members of Parliament, as well as to central agencies and other public sector representative groups, to assist them in their work to improve the performance and accountability of public entities.
The main ways in which this advice and assistance occurs is through:
- reports and advice to select committees to assist their financial reviews of government departments and Offices of Parliament, State-owned enterprises, and Crown entities;
- reports and advice to select committees to assist their examination of the Estimates of Appropriations; and
- reports to responsible Ministers on the results of the annual audits.
We also provide advice and assistance through:
- reports to Parliament and other constituencies on matters arising from our annual audits (including presenting two reports to Parliament on the results of our audits in central and local government);
- responding to requests and participating in working parties on matters related to financial management and accountability with other stakeholders, including government departments, central agencies, local authorities, professional bodies, sector organisations, and other public entities; and
- working with Auditors-General in other countries to encourage, promote, and advance co-operation in the field of public audit. This includes our role as Secretariat of the Pacific Association of Supreme Audit Institutions (PASAI), being a member of various committees of the International Organisation of Supreme Audit Institutions (INTOSAI), and being executing agent for the Pacific Regional Audit Initiative (funded by the Asian Development Bank, with co-financing from the Japan Special Fund and the Government of Australia).
Our output measures and standards for services to Parliament are shown in Figure 10.
Figure 10
Services to Parliament – output measures and standards
| 2010/11 measures and standards of output delivery (and forecast for 2011/12 and 2012/13) | 2008/09 Actual | 2007/08 Actual |
|---|---|---|
| Reports and advice are given to select committees and Ministers at least two days before an examination, unless otherwise agreed. | 100% | 100% |
| An internal review of a sample of financial review, Estimates, and Ministerial reports confirms that they meet relevant standards and procedures, including that reports are consistent in their framework and approach and are peer reviewed in draft. (The nature, extent, and frequency of the quality assurance review are based on risk. The review is carried out during a three-year period.) | There was no internal review this year. | Confirmed by internal review of a sample of reports. |
| At least 85% of select committee members we survey rate the advice they receive from us as 4 or better on a scale of 1 to 5 for: | ||
|
86% | 80% |
|
86% | 83% |
| At least 85% of other stakeholders we survey rate the advice they receive from us as 4 or better on a scale of 1 to 5 for relevance and usefulness. | 100% | 100% |
In the next three years, we will focus on good analysis and reporting of sector information. We are carrying out work to better identify, categorise, and manage the flow of information from annual audits into our services to Parliament and carrying out performance audits and inquiries. We want to communicate to Parliament and our other stakeholders what we learn from our annual and discretionary work, so they can get the best from what we know and respond to issues and concerns as they see them.
The Controller function
The Controller function of the Controller and Auditor-General provides independent assurance to Parliament that expenses and capital expenditure of government departments and Offices of Parliament have been incurred for purposes that are lawful and within the scope, amount, and period of the appropriation or other authority.
The OAG and appointed auditors carry out standard procedures to give effect to the Controller function in keeping with the Auditor-General's auditing standards and a Memorandum of Understanding with the Treasury. This involves reviewing monthly reports provided by the Treasury, and advising the Treasury of any issues arising and the action to be taken.
Each year, we report to Parliament on the significant issues arising from the operation of the Controller function.
Our output measures and standards for performing the Controller function are shown in Figure 11.
Figure 11
Controller function – output measures and standards
| 2010/11 measures and standards of output delivery (and forecast for 2011/12 and 2012/13) | 2008/09 Actual | 2007/08 Actual |
|---|---|---|
| Monthly statements provided by the Treasury are reviewed for the period September to June inclusive.* Advice of issues arising and action to be taken is provided to the Treasury and appointed auditors within five working days of receipt of the statement. | All monthly procedures have been followed, and agreed timescales achieved. | All monthly procedures have been followed, and agreed timescales achieved. |
| Internal quality assurance is undertaken to gain assurance that our policies, procedures, and standards in relation to the Controller function have been applied appropriately. (The nature, extent, and frequency of the quality assurance review are based on risk. The review is carried out during a three-year period.) |
An internal review was carried out in May 2009, which confirmed the central work carried out was consistent with the Memorandum of Understanding and that the processes operated effectively. There was considerable improvement in the appropriation audit approach and documentation to demonstrate compliance with the auditing standard. | Review to be carried out in the first quarter of 2008/09, at the end of Controller function work for 2007/08. |
* This action is based on the requirement in section 65Y of the Public Finance Act 1989 for the Treasury to submit reports to the Auditor-General following the preparation (under section 31A) of financial statements of the Government "after the end of each month (except for the first 2 months and the last month) in each financial year".
The Vote estimate for the Supporting accountability to Parliament output class in 2010/11 is $2.460 million.
Output class: Performance audits and inquiries
The Public Audit Act 2001 provides the Auditor-General with the discretion to carry out performance audits and inquiries to examine matters concerning a public entity's use of resources, including:
- the extent to which activities are carried out effectively and efficiently;
- compliance with statutory obligations;
- any acts or omissions to determine whether waste has resulted or may result; and
- any act or omission showing or appearing to show a lack of probity or financial prudence by a public entity or its members, office holders, or employees.
The Auditor-General must also respond to requests for approvals in relation to pecuniary interest questions regulated by the Local Authorities (Members' Interests) Act 1968.
Performance audits, inquiries, and good practice guides allow the Auditor-General to consider and provide advice about issues of accountability, performance, waste, probity, and authority in greater depth than is appropriate within the statutory scope of an annual audit.
Effective, efficient, and accountable public entities that operate within their authority and according to high ethical standards are the foundation for trust in the public sector. Therefore, the intended impacts of the appropriation are as shown in Figure 12.
Figure 12
Performance audits and inquiries – main impact measures and standards
| 2010–13 main impact measures and standards | 2008/09 Actual | 2007/08 Actual |
|---|---|---|
| Entities accept or respond to the recommendations made in our performance audits, as assessed by internal review of performance audits published in the previous year. The results are presented to the Officers of Parliament Committee in our annual follow-up report. | Three performance audit reports were selected by our Audit and Risk Committee for review and the results were presented to the Officers of Parliament Committee. The review concluded that our recommendations had been accepted by the relevant entities and either had been implemented or were being implemented. | Three performance audit reports were selected for review by our Audit and Risk Committee and the results were presented to the Officers of Parliament Committee. The review concluded that our recommendations had been accepted by the relevant public entities and either had been implemented or were being implemented. |
| Entities take action in response to concerns identified in inquiry reports, as assessed by follow-up on a sample of sensitive and major inquiries undertaken in the previous year. | We followed up on four of the 11 inquiries within these categories from the previous year that contained recommendations or suggestions for action. In all cases, we were satisfied with the action taken. | We have followed up the one sensitive inquiry that was carried out in 2006/07 (there were no major inquiries). The entity has taken positive steps to address the comments we made. |
Performance audits
A performance audit is a significant and in-depth audit covering issues of effectiveness and efficiency. It provides Parliament with assurance about specific issues or programmes and how well these are managed by the relevant public entity or entities. We also do other studies that may result in published good practice guidance on topical issues of public sector accountability and performance to assist public entities to better manage these issues.
Core areas of interest for the Auditor-General include:
- major public investment or liability management (focusing on the New Zealand Debt Management Office, Accident Compensation Corporation, New Zealand Superannuation Fund, Government Superannuation Fund, Earthquake Commission, and Student Loans Scheme);
- major public revenue management or generation (focusing on the Inland Revenue Department and New Zealand Customs Service);
- major asset management or infrastructure spending or management (focusing on health, correctional facilities, education, defence, conservation, transport, housing, and energy);
- major expenditure including service delivery expenditure (focusing on health, education, and social security and welfare); and
- local government (focusing on major asset management, infrastructure expenditure, delivery of services, and amalgamation of the Auckland councils).
Our output measures and standards for carrying out performance audits are shown in Figure 13.
Figure 13
Performance audits – output measures and standards
| Measures and standards of output delivery for 2010/11 (and forecast for 2011/12 and 2012/13) | 2008/09 Actual | 2007/08 Actual |
|---|---|---|
| We complete 19 to 21 reports on matters arising from performance audits and other studies, and inquiries. | 19 | 22 |
| Select committees and other stakeholders are satisfied with the proposed work programme of performance audits (as indicated by feedback on our draft annual work programme). | We sought feedback on our proposed 2009/10 work programme on two occasions under section 36(1) of the Public Audit Act 2001. The feedback mainly supported the approach we had taken to determining the proposed work programme. |
Feedback was sought on two occasions under section 36(1) of the Public Audit Act 2001. Feedback mainly supported the approach we took to the proposed work programme and gave us guidance on the scope and relative emphasis we should place on one or two key studies. |
| At least 85% of the stakeholders that we seek feedback from rate our performance audit reports (relevant to their sector or interest) as 4 or better on a scale of 1 to 5 for: | ||
|
Quality: 100% | Quality: 50% |
|
Usefulness: 67% | Usefulness: 66% |
| Our performance audit methodology reflects good practice for undertaking such audits, as assessed every second year by the Australian National Audit Office. | The Australian National Audit Office reviewed two performance audits and confirmed areas in which the quality of our reports is strong and areas for us to improve. | N/A |
| Each year, independent reviews of two performance audits are undertaken. These reviews confirm the quality of the reports in terms of the presentation of administrative and management context, report structure, presentation, and format (including use of graphics and statistics), and the reasonableness of the methodology used and the resulting conclusions and recommendations. | Independent reviews of two performance audits confirmed areas in which the quality of our reports is strong and areas for us to improve. | Independent reviews of two performance audits confirmed the quality of reports. |
| Internal quality assurance reviews on selected performance audit reports confirm that reports are prepared in keeping with the performance audit methodology. (The nature, extent, and frequency of the quality assurance review are based on risk. The review is carried during a three-year period.) | There was no internal review this year. | Internal review confirmed that appropriate systems and controls are in place and that reports are prepared in keeping with the performance audit methodology. |
In the next three years, we will focus on:
- Choosing a cross-cutting theme for 2012/13: We will carry out consultation and work programme development in 2010/11 and 2011/12 to choose the theme for our discretionary effort in 2012/13 that we will report on and that will make a lasting difference to the New Zealand public sector.
- Auckland: We will prepare and present to Parliament in 2012 a report on the amalgamation of eight local authorities into one "super" council.
- Performance measures: We will continue to publish examples of better practice during 2010–13, and will look to prepare a performance audit report that demonstrates the uses and usefulness of external performance information.
Inquiries
The Auditor-General has the discretion to inquire into a public entity's use of resources. The Auditor-General can carry out inquiries on her own initiative and when correspondence from the public draws attention to potential issues. A few such issues lead to major inquiries. We also administer the Local Authorities (Members' Interests) Act 1968, which governs the financial interests of members of local authorities.
Each year, we usually receive:
- 200 to 300 external requests for inquiries; and
- 50 to 100 enquiries under the Local Authorities (Members' Interests) Act.
We classify inquiries into three categories – routine, sensitive, and major – depending on how serious the issues raised are. A routine inquiry involves straightforward issues, and can often be carried out either by a review of documents or through correspondence and discussion with the public entity. It will not usually result in a published report. We always advise the correspondent of our conclusions and the reasons for them, and in some instances we advise the public entity of the matter.
Sensitive and major inquiries involve more complex issues and may attract a broader level of public interest and attention. In these inquiries, we will often review the public entity's files and may also formally interview people. We may report the results of these inquiries publicly, as well as advising the correspondent and the public entity.
Our output measures and standards for carrying out the inquiries function are shown in Figure 14.
Figure 14
Inquiries – output measures and standards
| Measures and standards of output delivery for 2010/11 (and forecast for 2011/12 and 2012/13) | 2008/09 Actual | 2007/08 Actual |
|---|---|---|
| 80% of our findings on inquiries are reported to the relevant parties within: | ||
|
84% (99 routine inquiries, 83 reported within three months). | 91% (115 routine inquiries, 105 reported within three months). |
|
73% (11 sensitive inquiries, 8 reported within six months). | 82% (11 sensitive inquiries, 9 reported within six months). |
|
0% (two major inquiries, both reported within 13 months). | No major inquiries were carried out. |
| For enquiries under the Local Authorities (Members' Interests) Act 1968, we complete 80% of enquiries within 30 working days. | 87% (53 received, 46 reported within 20 working days). | 95% (103 received, 98 reported within 30 working days). |
| Responses to requests for inquiries and our administering of the Local Authorities (Members' Interests) Act 1968 requests are in accordance with relevant policies, procedures, and standards, as confirmed by internal quality assurance review. (The nature, extent, and frequency of the quality assurance review are determined based on risk. The review is carried out during a three-year period.) |
No internal quality assurance review was undertaken in 2008/09. | Review was completed and confirmed that requests are undertaken in accordance with relevant policies, procedures, and standards. |
The Vote estimate for the Performance audits and inquiries output class in 2010/11 is $6.587 million.
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