Auditor-General's overview
In this report, I present the aggregate results of the central government sector audits for 2010/11. I also present in more depth the results and our analysis for government departments and Crown Research Institutes, and discuss the quality of financial and non-financial reporting. The report concludes with some comments and questions that, in my opinion, are important to public accountability reporting in the future.
The 2010/11 year has been challenging for many public entities, with the Government continuing to focus on measures to reduce public sector expenditure while maintaining and improving core performance.
On top of this, the Canterbury earthquakes have been particularly significant for the region and for many public entities. We discuss the main financial reporting implications that we have seen, arising from the earthquakes, for entities and for the financial statements of the Government. We also discuss the Government's use, for the first time, of section 25 of the Public Finance Act 1989 for the authorisation of emergency expenditure.
We have issued unmodified audit opinions for all government departments and Crown Research Institutes for 2010/11. We have also rated highly both departments and Crown Research Institutes for their management control environment and financial systems and controls for 2010/11. Ninety-five percent of government departments were rated as "Good" or "Very good". We were very pleased with the excellent result achieved by the Crown Research Institutes, all of which had "Very good" ratings for their management control environment and "Very good" or "Good" for their financial systems and controls. In the latter category, there was a notable improvement from 12% to 50% rated "Very good" in the space of one year.
We continue to support the efforts of public entities and the monitoring departments to improve the planning and reporting of performance information and we are now applying our revised auditing standard in this area. We have seen a marked improvement in the quality of departments' preparation, use, and reporting of performance information. This is crucial to improving public sector performance. I am particularly pleased that the 28 Crown entities and departments that were audited under our revised auditing standard received unmodified audit opinions for their performance reporting.
Our work during the last few years has provided unique insight into the performance system as a whole. I consider that it is time to stand back and look at the way the public sector measures and reports its performance. The question now is: Where to next with reporting on financial and non-financial performance?
I am pleased that New Zealand is a step closer to the changes to the public sector financial reporting standards and arrangements for accounting and auditing that my Office has been advocating. We support the long-term strategy to separate the reporting requirements of public benefit entities from those of for-profit entities, and the differentiation of reporting according to size. We will continue to press for reporting standards and arrangements – both financial and non-financial – that are most appropriate for the New Zealand public sector.
In particular, I would like to see some focus on these questions:
- Is "one size fits all" appropriate for the future?
- Is it is efficient and useful for each and every entity to be measuring higher-level outcomes?
- Should there be a more collective approach to reporting?
- Is a simpler, more flexible approach desirable?
I have recently participated in a working group with accounting colleagues from New Zealand and Scotland in a collaborative project for the International Accounting Standards Board to consider whether mandatory disclosure should be reduced to allow more meaningful financial reporting. In July 2011, a report was published: Losing the excess baggage – reducing the disclosures in financial statements to what's important. The working group considers that annual financial statements could be reduced by about a third as a result of what it proposes. I hope this report is given the attention it deserves.
I am concurrently publishing a separate report that discusses the audit results for the education sector. I will also publish a third report of central government audit results early in 2012, which will contain the results and analysis of our 2010/11 audits of State-owned enterprises, district health boards, and other Crown entities.
We are now preparing our work programme for 2012/13, which will focus on the theme of Our future needs – is the public sector ready? I want my Office's work on this theme to make a lasting difference to the public sector and to the public.
Lyn Provost
Controller and Auditor-General
16 December 2011