Auditor-General's overview

Science and innovation are important to New Zealand's economic growth. The two high-level (government priority) outcomes that the science and innovation sector contributes to are "growing the economy" and "building a healthier environment and society". Crown research institutes (CRIs) are central to the Government's expectation that investing in science makes a significant contribution to New Zealand's economic and environmental prosperity.

Each year, I report on the results of our annual audits of CRIs, including their financial performance and control environment, systems, and controls. I have been particularly pleased with the quality of CRIs' management control environment and their financial systems and controls. These have been rated highly compared with other public entities.

The quality of performance reporting is vital to understanding how effectively and efficiently public entities are using the public resources they receive. Recently, changes were made to CRIs' accountability arrangements and performance framework. CRIs are now required to report against the outcome/impact measures for their core purpose outcomes in their annual reports. For 2011/12, these measures are included in their 2011-16 statements of corporate intent.

I signalled last year that we would look at whether the CRIs are meeting this requirement. My staff found that only Landcare Research New Zealand Limited had done so. Although all CRIs had some measures for assessing outcomes, they did not always report clearly what was being measured and whether the outcome was being met. In my view, CRIs need to improve their reporting of achievements against core purpose outcomes. This is an essential part of the accountability of CRIs for the Government's investment in science.

For the last six years (except for 2009/10, when a change to tax law resulted in an aggregate deficit result), CRIs had a positive financial result. This year, we have also looked more closely at eight indicators in the financial statements – consistency and accuracy of the budget/forecast processes (stability), financial capacity to "bounce back" from unanticipated events (resilience), and financial capacity to manage longer-term uncertainties (sustainability). I consider that these indicators may be a useful complement to the indicators already used by the monitoring department (now the Ministry of Business, Innovation and Employment), and hope that they generate debate.

My intention in the next year or two is to widen the focus of this report to the science and innovation sector as a whole. I will continue my interest in the quality of CRIs' reporting against the core purpose statements and report again on the results of our analyses of financial performance in the CRI sector. I will also report on CRI and State-owned enterprise decision-making at Board level about future strategies, tactics, and operations based on the right information, in the right form, at the right time.

Lyn Provost
Controller and Auditor-General

11 March 2013