Part 1: The operating environment of central government

Central government: Results of the 2011/12 audits.

1.1
Last year, we reported that public entities in the central government sector were faced with a challenging environment, with pressure to reduce operating costs while improving levels of service delivery. We also noted greater collaboration and cross-agency working, and greater outsourcing of public service delivery to non-government organisations. In 2011/12, we observed similar challenges and trends for public entities, including a focus on:

Fiscal constraint

1.2
Public entities are operating under ongoing fiscal constraint. At the same time, the public and the Government expect that public services will be more effective and easier to access.

1.3
The Financial Statements of the Government of New Zealand for the year ended 30 June 2012 (the Government's financial statements) reported $84 billion of revenue and expenditure of $93 billion, resulting in a deficit of $9 billion. The Government has a target to reduce the deficit and return to surplus in 2014/15.1

1.4
The 2012 Budget included few increases in expenditure, with most entities expected to operate within existing and, in some cases, reduced levels of funding. Public entities are also experiencing increasing costs, particularly insurance costs. In its Half Year Economic and Fiscal Update, the Treasury forecast that:

With this forecast pace of growth [in government spending] lagging behind that of overall [Gross Domestic Product, or GDP], government spending on goods and services' share of real GDP falls from 18.5% at present to 16.7% in the June 2017 quarter. 2

1.5
Within this context, public entities are seeking new and improved ways of delivering public services so that services continue to improve without increases in expenditure. These include:

  • more collaboration between entities to address complex, long-term social and economic issues;
  • greater use of providers from the private and non-government sectors to deliver services; and
  • initiatives to improve the efficiency of back-office services across entities, such as through shared services arrangements and all-of-government procurement.

Ongoing change and reform

1.6
There was extensive change to public entities in the central government sector during 2011/12, with a range of initiatives to improve performance, effectiveness, and efficiency.

1.7
In November 2011, the Government's Better Public Services Advisory Group (the Advisory Group) reported that New Zealand's public services:

  • respond reasonably well to Ministers' needs;
  • provide reasonable services to citizens;
  • are trusted to be impartial and ethical; and
  • can respond well in times of crisis.3

1.8
However, the Advisory Group's report also described significant scope for improvement in the system and capacity of public services. In particular, it noted scope for:

  • greater focus on results;
  • strengthened leadership; and
  • more focus on improvement, innovation, and value for money.

1.9
The State Services Commission (SSC) led a review of the findings from individual departments' Performance Improvement Framework (PIF) reviews. It found that, although public entities are generally strong in delivering the Government's immediate objectives, there are weaknesses in resolving longer-running issues.4 On the basis of its analysis, the SSC will be looking for departments to improve their capability to:

  • provide robust policy advice that stands the test of time;
  • develop a stronger understanding about the relationship between expenditure and the effect of that expenditure, which requires having better information on the effectiveness of programmes and services, and using that information to make investment and improvement decisions;
  • work across agency boundaries to improve outcomes; and
  • manage people better to more effectively communicate the vision, develop appropriate cultures and capability, and manage poor performance.

1.10
In response to the Advisory Group's report, the Government has begun a wide-ranging programme of reforms to the public sector, including some proposals for legislative changes that are now being scrutinised by Parliament.

1.11
The State Sector and Public Finance Reform Bill includes proposals for legislative amendments to the State Sector Act 1988, the Public Finance Act 1989, and the Crown Entities Act 2004. With these reforms, the Government intends to:

  • encourage government agencies to work more closely together;
  • support government agencies to share functions and services, and purchasing of goods and services;
  • provide for greater financial and reporting flexibility; and
  • promote stronger leadership across the public service.5

1.12
A range of structural changes were implemented in 2011/12, most notably the creation of the Ministry of Business, Innovation and Employment (MBIE) by bringing together the functions of the Department of Building and Housing, the Department of Labour, the Ministry of Economic Development, and the Ministry of Science and Innovation. During 2011/12, other departments continued to implement new systems and structures as a result of previous changes, mergers, and transitions. These included the Department of Internal Affairs (DIA) and the Ministry for Primary Industries.

1.13
This ongoing and extensive change presents risks to management and financial control environments in entities. We found that, in the context of such change, entities were mostly managing risks to their core systems and controls reasonably well. However, we advised continued vigilance as agencies continue their change programmes and embed new systems and processes. We will continue to focus on how these risks are being managed in our 2012/13 audits.

A focus on priorities

1.14
The Government has established four main priorities for the public sector. These are to:

  • responsibly manage government finances;
  • build a more productive and competitive economy;
  • deliver better public services within tight financial constraints; and
  • rebuild Christchurch.6

1.15
In March 2012, the Prime Minister also announced the establishment of 10 "Key Result Areas" that are grouped under the five themes of:

  • reducing long-term welfare dependency;
  • supporting vulnerable children;
  • boosting skills and employment;
  • reducing crime; and
  • improving interaction with government.

More leadership from the State Services Commission, the Treasury, and the Department of the Prime Minister and Cabinet

1.16
The SSC, the Treasury, and the Department of the Prime Minister and Cabinet (the central agencies) are working more closely together with the intention of becoming more like a corporate head office.7

1.17
These agencies have also joined up their "back office" functions, such as ICT support, finance, payroll, and human resources, into the Central Agencies Shared Services (CASS).

1.18
The Government has made arrangements for "functional leadership" in three areas of government business activity: property, ICT, and procurement (see Figure 1). The aim of these arrangements is to achieve more efficiency across entities, improve service delivery, develop expertise and capability across entities, and ensure business continuity.

Figure 1
"Functional leadership" arrangements for property, information and communication technology, and procurement

Property The Property Management Centre of Expertise is mandated to negotiate new leases and to work with agencies on co-location and sharing facilities. It has led the development of the Public Service Property strategy. This strategy includes centralised negotiation for future public service office space in the capital, with accommodation leases due to expire for five large government agencies (the Ministries of Social Development, Health, Education, and Business, Innovation and Employment, and the Crown Law Office).
ICT The Government Chief Information Officer (GCIO) sets direction through a combination of mandates and influence, and chief executives of state services participate in collective leadership arrangements. Common capabilities include cloud computing.
Procurement The Chief Executive of MBIE is responsible for leading Procurement Functional Leadership with the aim of lifting procurement performance across the state services. The objectives are to:
  • strengthen and accelerate the current government procurement reform programme – providing stronger and broader uptake of initiatives;
  • introduce stronger leadership based on a centre-led model;
  • provide clear accountability for delivering commercial results;
  • support greater collaboration across state services agencies; and
  • improve oversight and support for agency procurement.

Source: Better Public Services: Cabinet Papers and Minutes, available at www.ssc.govt.nz.

Greater collaboration

1.19
To address the Government's priorities and targets, public entities are working collaboratively. New governance arrangements are being implemented to support working across sectors and between entities.

1.20
For example, in the justice sector, the Ministry of Justice, Department of Corrections, New Zealand Police (the Police), Serious Fraud Office, Crown Law Office, and Ministry of Social Development (for youth justice) are working together to reduce crime and numbers in the "criminal justice pipeline". In 2012, this collaboration was formalised with the establishment of a Justice Sector Leadership Board comprising the Chief Executives of the Ministry of Justice, the Police, and the Department of Corrections.

More emphasis on medium- and long-term strategic planning

1.21
There is more focus on medium- and long-term planning. Entities are now required to prepare four-year plans. This is a joint SSC and Treasury initiative that replaces the previous requirement to submit separate four-year Budget plans and workforce strategies. Four-year plans combine, in one document, a discussion of strategic direction, medium-term delivery, financial planning, organisational capability, and workforce strategy. Four-year plans are aimed at providing Ministers and the central agencies with a clear view of an agency's:

  • medium-term strategy;
  • financial performance; and
  • workforce.

1.22
Four-year plans are also aimed at providing Ministers with a more comprehensive picture of how agencies and sectors intend to deliver government priorities, and reducing reporting requirements on agencies.

The recovery and rebuild after the Canterbury earthquakes

1.23
Rebuilding after the Canterbury earthquakes is one of the Government's four main priorities, and it therefore remains a strong feature of the work of many public entities. In our report Roles, responsibilities, and funding of public entities after the Canterbury earthquakes, we noted the complex nature of the recovery and rebuild, and identified the risks and challenges for public entities involved in the recovery. Our report stressed the importance of good co-ordination among all those involved.

1.24
For the public sector, the financial consequences of the earthquakes are still uncertain. The cost to the Crown is likely to be more than $13 billion.

1.25
Because of the uncertainties with the eventual net costs of the Canterbury earthquakes, our appointed auditors included "emphasis of matter" paragraphs in the audit reports for the Canterbury Earthquake Recovery Authority (CERA), the Earthquake Commission (EQC), Southern Response Earthquake Services Limited (Southern Response, formerly AMI Insurance Limited), and the Government's financial statements.

Managing information and communication technology and security issues

1.26
In line with government priorities, public entities are increasingly employing digital technology to deliver public services. ICT has become essential for delivering many of these services, such as collecting taxes, paying benefits, and recording land titles.

1.27
Within DIA, the Government Chief Information Officer (GCIO) is accountable for leading more effective use of ICT across agencies by implementing the Government's programme of projects, Directions and Priorities for Government ICT. The GCIO also advises on the use of all-of-government ICT, such as the use of cloud computing and all-of-government ICT procurement.

1.28
Effective use of ICT can reduce costs and help meet what people and businesses expect in their dealings with government. Two of the 10 outcome targets in the Better Public Services for New Zealanders (BPS) initiative (results 9 and 10) are related to delivering services in a digital environment. By 2017, the target is to deliver about 300% more digital service interactions with the public than there are now.

1.29
In addition, the Service Transformation Programme (led by the Office of the Government Chief Information Officer) aims to design and build public services around customer needs rather than around the structure of government agencies. This programme includes more than 20 different public entities that cover about 90% of citizens' transactions with government.

1.30
In June 2012, we published a report describing six public sector projects that used technology as a means of delivery (Realising benefits from six public sector technology projects). We identified six themes and lessons from the projects:

  • understanding the environment and making the most of circumstances;
  • using a business-led, flexible, and agile approach;
  • having strong support from leaders and senior managers;
  • working effectively with the right people, including end users;
  • using the right technology tools; and
  • monitoring and understanding the benefits.

1.31
Ageing ICT legacy systems remain a concern for public entities. In our information services audit assurance work, we have found that, generally, entities are aware of the risks associated with older ICT systems and are taking step to mitigate these risks.

1.32
Mergers between departments have also created challenges, particularly in integrating systems from entities that have been operating independently for a number of years. If ICT systems are not successfully merged, there is a risk that anticipated efficiency savings may not be realised as soon as forecast or at all.

1.33
The unintentional release of data about more than 6500 Accident Compensation Corporation clients in March 2012, and the information breach of the Ministry of Social Development's kiosks, highlighted the importance of good controls, risk management, and governance around the use of information. Greater cross-agency working, particularly in case management, is testing the public sector's approach to handling private information, and the shift towards greater use of cloud computing also raises risks with information management that will need careful management.

Outsourcing of service delivery

1.34
The increasing trend towards outsourcing the delivery of services continued. This included piloting different ways of delivering public services, such as the Social Sector Trials (specifically for youth services) and contracting for outcomes (for social services more widely), the Whānau Ora programme, and more use of the private sector in general.

1.35
Greater contracting and commissioning of services can require more relationship-based approaches and developing mutual capability to deliver outcomes. This may require different types of skills for public servants.

1: New Zealand Treasury, Half Year Economic and Fiscal Update, 18 December 2012.

2: New Zealand Treasury, Half Year Economic and Fiscal Update, 18 December 2012, page 15.

3 New Zealand Government, Better Public Services Advisory Group Report, November 2011, page 5.

4: Office of the Minister for State Services (May 2011), Cabinet Paper, Performance Improvement Framework Second Tranche Results and System Findings, and Deborah Te Kawa and Kevin Guerin (November 2012), "Provoking Debate and Learning Lessons: it is early days, but what does the Performance Improvement Framework challenge us to think about?", Policy Quarterly Vol. 8, Issue 4.

5: New Zealand Government, Pre-introduction Parliamentary Briefing.

6: The Treasury (16 February 2012), Budget Policy Statement 2012, available on the Treasury's website, www.treasury.govt.nz.

7: Office of the Deputy Prime Minister and Office of the Minister of State Services, Better Public Services Paper 2: Better System Leadership, available on the State Services Commission's website, www.ssc.govt.nz.

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