Part 2: Audit results for 2011/12

2.1
Under section 15 of the Public Audit Act 2001, the Auditor-General audits the financial statements, accounts, and other information that public entities are required to have audited each year. The purpose of the annual audit is to give assurance that an entity's reports fairly reflect its financial and, where required, non-financial performance.

2.2
Public entities that we audit in the health sector include the Ministry, 20 DHBs and their subsidiaries, other health-related Crown entities, Crown companies, and regulatory authorities. The Auditor-General does not audit primary health organisations because they are not public entities. We include in the Appendix a list of the entities in the health sector that we audit.

2.3
Previously, our reporting on health sector audit results focused on DHBs. This year, we have broadened the coverage of our report to provide a fuller account of the results of our audit work in the health sector.

2.4
In this Part, we discuss the 2011/12 audit results, including:

• our audit opinions;
• our assessment of the management environment, systems, and controls for DHBs and other significant health sector entities; and
• particular areas of audit focus.

2.5
Audit results for the Ministry and non-DHB Crown entities will continue to be included in our central government report, which aggregates results by type of entity.

2.6
We report on DHBs' asset management in Part 3 and DHBs' financial performance in Part 5.

Audit results for district health boards

2.7
In carrying out the audits, our auditors focus on key areas of business and sector risk. The operating environment for DHBs, including increasing regionalisation and shared services, is described in Part 1.

2.8
As part of an annual audit, our auditors consider whether it is appropriate for a DHB to prepare its financial statements on the basis of the "going concern" assumption. That assumption is appropriate when the DHB is expected to be able to operate for the foreseeable future and at least for the next 12 months, taking account of all the available information.

2.9
In 2011/12, the "going concern" assumption for all 20 DHBs was considered valid. Four DHBs required a "letter of comfort" from the Ministers of Health and Finance that the Crown will continue to provide support where necessary to maintain financial viability. Our auditors were able to rely on the letters for those DHBs (Capital and Coast, Southern, West Coast, and Whanganui) to conclude that the going concern assumption was appropriate. In Part 5, we discuss the 2011/12 DHB financial results and our analysis of DHBs' financial statements (over six years) to help understand DHBs' ability to respond to financial risk.

2.10
We modified one DHB audit opinion in 2011/12.⁴ As in the past three years, we issued a qualified opinion on Counties Manukau DHB's financial statements, because we disagreed with the DHB's accounting treatment of certain funding (as "income in advance") in the comparative information for the 2010/11 year. We continue to discuss this with the DHB.

2.11
Our auditors also drew attention to particular matters of emphasis in their audit reports (for example, about the uncertainties relating to earthquake-prone buildings for Hutt Valley DHB, which we comment on in paragraphs 2.20-2.21).

Earthquake-related issues

2.12
The Canterbury earthquakes of 2010 and 2011 killed 185 people, damaged more than 100,000 homes, destroyed much of Christchurch's central business district, and badly damaged infrastructure (for example, more than 9000 hospital rooms needed some degree of repair).

2.13
We continue to monitor and report on earthquake-related issues affecting Canterbury and the country more generally. Understandably, Canterbury is the DHB most affected by the earthquakes. However, there are also wider sector issues, such as the effect on insurance costs and the nature of insurance cover, and higher earthquake-strengthening requirements for buildings.

Canterbury DHB

2.14
The effects of the Canterbury earthquakes on Canterbury DHB are ongoing, including damage to facilities (along with associated costs and disruption), displacement of sections of the population, and effects on residents' health needs.

2.15
During the year, the DHB recognised an impairment of its buildings and equipment of $14.3 million, which is in addition to the $33.8 million recognised last year. Insurance is expected to meet most of the reinstatement costs, but it does not cover upgrades required to meet higher building code requirements. The DHB has also identified $28.9 million of specific additional costs as a result of the earthquakes.

2.16
Before the earthquakes, Canterbury DHB was planning a major redevelopment of Christchurch Hospital to better align its facilities with current models of care and to improve efficiency.

2.17
In September 2012, the Government announced its approval for the redevelopment project to progress to the next stage. A detailed business case was presented to, and approved by, Cabinet in March 2013. The proposed redevelopment is expected to cost more than $600 million and will be the largest and most complex building project in the history of New Zealand's public health service.

2.18
As part of our annual audit, we will continue to consider risks and areas of focus as the project progresses. We have included the Canterbury business case in our performance audit on DHBs' capital investment and regional service planning.

Insurance

2.19
Insurance costs have increased significantly after the earthquakes. At the same time, the nature of cover is changing. In October 2012, we asked public entities about their insurance cover. We intend to report our findings to Parliament this year and will include the results for the health sector, including a case study of HBL's collective insurance arrangement for DHBs.

Earthquake strengthening of buildings

2.20
DHBs have been considering their compliance with building codes and the earthquake strength of their buildings. This has resulted in a number of impairments (or potential impairments) of buildings being recorded in DHB financial statements. Examples of impairments (or potential impairments) reported at 30 June 2012 include:

• Hutt Valley DHB – although significant uncertainty exists, a potential impairment of $21 million was disclosed in the notes to the financial statements;
• Nelson Marlborough DHB – $6.4 million impairment due mainly to low earthquake strength assessment; and
• West Coast DHB – impairment of $2.6 million for buildings that are earthquake-prone.

2.21
In our 2011/12 audit report for Hutt Valley DHB, we drew attention to the uncertainties over the carrying value of certain buildings due to earthquake-strengthening issues. The Board is gathering information on the status of its buildings, including estimates of costs to strengthen buildings, and is expected to make decisions in 2013 about the affected buildings.

2.22
The Ministry is assessing the implications of earthquake-strengthening issues and changes to building codes for the sector. We will continue to monitor the effect of earthquake strengthening of buildings in our audit work.

Procurement

2.23
More than three-quarters ($10.8 billion in 2012/13) of Vote Health is used to fund the health services that each DHB provides directly to its population (for example, hospital services) or indirectly through other providers, including non-government organisations, primary health organisations, or another DHB.

2.24
This means there are two different aspects to DHB procurement and contracting. There are goods and services that the DHB uses itself, and health services that it purchases from other providers. DHBs spend about $5.7 billion each year purchasing supplies and services from other organisations. Managing this spending well is important, to ensure value for money and to minimise risks such as waste, fraud, and conflicts of interest.

2.25
DHBs' procurement policies and practices have been, and will continue to be, an area of interest for our Office. In September 2010, we published a performance audit report, Spending on supplies and services by district health boards: Learning from examples. We continue to follow up with DHBs on areas for improvement identified in that report and through our usual annual audit work.

2.26
Regional and national initiatives are key drivers of procurement change, opportunity, and associated risk for the DHB sector. This includes all-of-government initiatives led by government departments, sector initiatives led by HBL, and regional initiatives led by regional shared services agencies.

2.27
Our auditors reported that some DHBs were delaying making changes to systems and processes, pending the outcomes of sector and regional initiatives. We acknowledge that there is activity within the sector on collaborative procurement processes, and this might have contributed to some delays in taking remedial action. DHBs still need to consider the risks associated with delaying when they will make improvements.

2.28
We will continue to focus on DHB procurement and the effect of sector initiatives in our audits.

Contracting relationships

2.29
Last year, we reported that some DHBs had begun using "high trust" and integrated contracts, which can provide more effective and efficient procurement arrangements and can reduce reporting requirements. Figure 5 sets out some important principles of high-trust contracting arrangements.

2.30
Integrated contracts typically bring together multiple funding agreements into one single document that focuses on shared outcomes, with results agreed and described and flexibility about service delivery. The Whānau Ora approach includes an integrated contracting process, and Canterbury DHB's alliancing initiative is another example of a framework for integrated contracts.

2.31
During the last two years, we have reviewed aspects of Canterbury DHB's alliancing initiative. We found that governance and management structures are maturing. We also found that service providers are working:

• together rather than competing with each other;
• with other parts of the health system to determine appropriate models of care; and
• in an open and transparent manner with Canterbury DHB to actively address questions of service efficiency and consistent quality of service delivery.

Figure 5
Important principles of high-trust contracting agreements

With increasing use of high-trust contracting, we highlight important principles to observe in agreements with providers: transparency of decision-making processes; equity of treatment; and demonstrable value for money.

Information systems

2.32
Regionalisation, collaboration, and shared services continue to be themes in the DHB sector's information systems (IS) environment, and are expected to achieve more effective and efficient delivery of health services.

2.33
There is extensive IS planning and development throughout the sector, within DHBs, between regions, and at a national level (for example, led by the IT Health Board⁵).

2.34
IS development priorities include an eMedicines programme, regional information platforms for DHBs to store data and allow sharing of patient information systems throughout regions, and national systems (for example, oncology, cardiac, and InterRAI⁶ for aged care assessment).

2.35
Our auditors continue to focus on technology risks for the DHB sector. We highlight the need for:

• alignment of DHB plans against regional and national IS plans, to ensure that priorities are aligned, duplication and waste are avoided, and DHBs and the wider sector gain value for money from investments;
• strong governance and sound understanding by management and the board of major IS risks, and for appropriate regional governance bodies to be in place;
• continued focus on appropriate IS security; and
• a focus on business continuity planning throughout the DHB and on IT disaster recovery planning, which ensures that key systems are up and running as required. Regional planning provides an opportunity to highlight business and system continuity provisions.

2.36
Our auditors reported that some DHBs were delaying implementing long-term remedial improvements (for example, to activity level controls) because of current and pending regionalisation of IT operations. Delays might be appropriate in some situations, such as when new systems are being considered, but remedial actions should still be implemented if there are significant issues or risks.

2.37
In the Northern Region, healthAlliance provides information services to the four Northern DHBs. In June 2012, the IT assets of the four DHBs were transferred to healthAlliance. For our 2011/12 audits of the four northern DHBs, we carried out integrated audit and reporting through healthAlliance as the service provider. We reported issues and areas for improvement to healthAlliance as the entity responsible for remediation.

Assessing DHBs' management environment, systems, and controls

2.38
As part of the annual audits, our auditors comment on DHBs' management control environment, financial information systems and controls, and service performance information and associated systems and controls. We assign grades that reflect our recommendations for improvement (see Figure 6).

Figure 6
Grading scale for assessing public entities' environment, systems, and controls

Grade	Explanation of grade
Very good	No improvements are necessary.
Good	Improvements would be beneficial and we recommend that the entity address these.
Needs improvement	Improvements are necessary and we recommend that the entity address these at the earliest reasonable opportunity.
Poor	Major improvements are required and we recommend that the entity urgently address these.

2.39
We report each DHB's results to its management and its governing board. We also report the results to the Minister of Health, the Ministry (as the monitoring department), and the Health Committee of the House of Representatives.

2.40
Grades for a particular DHB might fluctuate from year to year depending on several factors, such as changes in the operating environment, standards, good practice expectations, and auditor emphasis. For example, a downward shift in grade might not indicate deterioration – it could be that the entity has not kept pace with good practice expectations for similar entities between one year and the next. How an entity responds to the auditor's recommendations for improvement is important, and the long-term trend in grade movement is a more useful indication of progress than year-to-year grade changes.

Grades in 2011/12

2.41
Our auditors assessed most of the DHBs as "good" in all three aspects for 2011/12, with service performance reporting still the main area where more improvement could be made (see Figure 7).

2.42
Overall, the grades show that most DHBs have sound management control environments and sound financial information systems and controls.

Figure 7
Summary of district health boards' 2011/12 grades for environment, systems, and controls

District health board	Year audited	Management control environment	Financial information systems and controls	Service performance information and associated systems and controls
Auckland	2011/12	Good	Good	Needs improvement
	2010/11	Good	Good	Needs improvement
Bay of Plenty	2011/12	Good	Good	Needs improvement
	2010/11	Good	Good	Needs improvement
Canterbury	2011/12	Very Good	Good	Very Good
	2010/11	Very Good	Good	Good
Capital and Coast	2011/12	Needs improvement	Good	Needs improvement
	2010/11	Needs improvement	Needs improvement	Needs improvement
Counties Manukau	2011/12	Good	Good	Good
	2010/11	Good	Good	Good
Hawke's Bay	2011/12	Good	Good	Good
	2010/11	Good	Good	Good
Hutt Valley	2011/12	Good	Needs improvement	Good
	2010/11	Good	Needs improvement	Good
Lakes	2011/12	Good	Good	Good
	2010/11	Good	Good	Good
MidCentral	2011/12	Good	Needs improvement	Good
	2010/11	Good	Needs improvement	Needs improvement
Nelson Marlborough	2011/12	Good	Good	Good
	2010/11	Good	Good	Good
Northland	2011/12	Good	Good	Good
	2010/11	Good	Good	Good
South Canterbury	2011/12	Very Good	Good	Good
	2010/11	Very Good	Good	Good
Southern	2011/12	Good	Needs improvement	Needs improvement
	2010/11	Good	Good	Good
Tairawhiti	2011/12	Good	Good	Needs improvement
	2010/11	Needs improvement	Needs improvement	Needs improvement
Taranaki	2011/12	Good	Good	Good
	2010/11	Good	Good	Good
Waikato	2011/12	Good	Good	Good
	2010/11	Good	Good	Good
Wairarapa	2011/12	Good	Good	Needs improvement
	2010/11	Good	Good	Needs improvement
Waitemata	2011/12	Good	Good	Good
	2010/11	Good	Good	Good
West Coast	2011/12	Good	Good	Good
	2010/11	Good	Good	Good
Whanganui	2011/12	Good	Good	Needs improvement
	2010/11	Good	Good	Needs improvement

2.43
In 2011/12, four DHBs improved their grades from the previous year. Canterbury and MidCentral DHBs increased their grades for service performance information. Capital and Coast and Tairawhiti DHBs improved their grades for financial information systems and controls from "needs improvement" in 2010/11 to "good". Tairawhiti DHB also had the same improvement in its management control environment grade.

2.44
Southern DHB's grades for financial and service performance information systems and controls went down from "good" in 2010/11 to "needs improvement" in 2011/12. Our auditor noted that improvements were required to the DHB's financial budgeting, monitoring, and forecasting procedures and also recommended improvements to the quality of its service performance reporting, including reporting progress against health outcomes and impacts.

Five-year trends in management control environment and in financial information systems and controls

2.45
Figures 8 and 9 set out our grades for DHBs from the past five years for management control environments and financial information systems and controls.

Figure 8
Grades for district health boards' management control environment, 2007/08 to 2011/12

Figure 9
Grades for district health boards' financial information systems and controls, 2007/08 to 2011/12

2.46
The grades for DHBs' management control environments and financial information systems and controls show a steady improvement over the years. The overall number of "needs improvement" grades in these two aspects has been steadily reducing each year, which indicates that DHBs are continuing to maintain and improve their systems and controls.

Service performance reporting

2.47
Service (non-financial) performance reporting is an integral part of our parliamentary accountability system, and helps the Government to seek better efficiency, effectiveness, and value for money from the public sector.

2.48
Since 2006, the Auditor-General has stressed the importance of quality non-financial performance information to explain and help understanding of public sector performance and effectiveness.

2.49
In 2008/09, for the first time, we issued grades for public entities' service performance information and associated systems and controls. At that time, we graded all DHBs as "poor/needs improvement". DHBs did not identify clearly or comprehensively the services that they delivered. Also, the quality of measures for outcomes and for services provided was poor.

2.50
DHBs' service performance reporting improved considerably during the next two years, after significant work by the DHBs individually and regionally, and by the Ministry. We also continued to work with DHBs during this time to recommend areas for improvement.

2.51
Figure 10 shows the grades our auditors gave DHBs for each of the past three years.

Figure 10
Grades for district health boards' service performance information and associated systems and controls, 2009/10 to 2011/12

2.52
Although the overall results for 2011/12 are similar to 2010/11, our auditors reported that DHBs were continuing to improve the quality of their service reporting, including MidCentral DHB, which improved from "needs improvement" to "good".

2.53
Canterbury DHB received a "very good" grade, the first DHB to do so. This is particularly noteworthy because only about 4% of all public entities (government departments and Crown entities) that we assessed in 2011/12 were graded as "very good". Canterbury DHB and Hawke's Bay DHB (which presents an informative performance story in its 2011/12 annual report) provide useful exemplars for other DHBs to help them report fully and comprehensively on their performance.

Applying our revised auditing standard in 2012/13

2.54
In 2012/13, we will apply a revised auditing standard to our audit of DHBs' service performance information. The revised standard requires our auditors to modify their audit opinion if the performance information in the annual report does not, in their opinion, fairly reflect performance for the year.

2.55
Before implementing this revised auditing standard, we have worked with the Ministry and DHBs to help DHBs improve their service performance reporting. Our early focus was on helping DHBs to improve their statements of intent, on the assumption that this will lead to better annual reporting of performance. This included publishing a paper in 2011, District health boards: Learning from 2010–13 Statements of Intent.

2.56
In June 2012, we published a companion paper, District health boards: Quality annual reports,⁷ which assesses and discusses characteristics of non-financial performance reporting in the DHBs' 2010/11 annual reports. The paper is intended to help DHBs improve the quality of their performance reporting.

2.57
One of our main findings was the need for many DHBs to improve their reporting on the effects of their services and other activities towards achieving better health for their communities. The DHBs continued to improve their service performance reporting in 2011/12, but further improvement is still needed. Figure 11 sets out our expectations of DHBs' performance reporting.

Figure 11
Our expectations of district health boards' performance reporting

We expect DHBs to report on their performance in a manner that is clear, logical, and understandable, and that: provides a basis for assessing how effectively each DHB responds to its strategic priorities and achieves its intended outcomes; links financial information and good quality non-financial performance information to provide a basis for assessing cost-effectiveness; and describes its services clearly and concisely, particularly the quality of those services.

2.58
We will continue to work with DHBs and the Ministry to help DHBs to continue to improve their performance reporting as we apply the revised standard to the audits of DHBs in 2012/13.

Audit results for regional shared services agencies

2.59
As already outlined, the role and functions of DHB shared services agencies are evolving with the increased focus on regional collaboration and achieving efficiencies and cost savings. There are also a range of national initiatives in the sector, such as those led by HBL, that are interconnected with regional collaboration.

2.60
Figure 3 sets out the regional structure of DHBs, including the jointly owned shared service agencies. We discuss these agencies and our audit results in more detail below. We will continue to report on these agencies, which are playing an increasingly significant role in supporting the sector.

Northern Region

2.61
We issued unmodified audit opinions on healthAlliance, Northern DHB Support Agency Limited, and Northern Regional Training Hub Limited.

2.62
healthAlliance has emerged as a more significant shared services agency for the region and now has more than 500 staff. Its revenue and expenditure more than doubled from $42 million in 2010/11 to $91 million in 2011/12.

2.63
healthAlliance was set up in July 2000 as a joint venture between Counties Manukau and Waitemata DHBs. Its scope and ownership was changed in March 2011, and it is now jointly owned by the four northern DHBs and HBL (they each own 20%).

2.64
The main functions of healthAlliance include finance, information services, some procurement services, and regional internal audit for the DHBs. It also provides business improvement, human resources, and staffing services (such as payroll processing) to some of the DHBs. During 2011/12, all IT assets owned by the northern DHBs were transferred to healthAlliance.

2.65
Northern DHB Support Agency Limited provides regional support functions, including regional service planning and purchasing and contracting functions for specified health services for the northern DHBs.

2.66
Northern Regional Training Hub Limited facilitates the training and education of clinical workforces for the northern DHBs.

2.67
On 1 March 2013, Northern DHB Support Agency Limited and Northern Regional Training Hub Limited were amalgamated and renamed as Northern Regional Alliance Limited.

Midland Region

2.68
We issued an unmodified opinion on HealthShare Limited.

2.69
The role of HealthShare Limited in administering and facilitating regionalisation of Midland DHB clinical services is expanding. In 2012/13, it will be moving into a range of new activities, including regional information systems and internal audit.

Central Region

2.70
We issued unmodified audit opinions on Allied Laundry Services Limited and TAS.

2.71
We also issued an unmodified opinion on DHBNZ, which included an emphasis of matter paragraph drawing attention to the preparation of the financial statements on a dissolution basis.

2.72
The former activities of DHBNZ were acquired by TAS with effect from 1 September 2011. DHBNZ's functions were rebranded as District Health Board Shared Services (DHBSS), which is a distinct unit in the new TAS.

2.73
The amalgamation has meant significant change to TAS's organisational structure, systems, and internal controls. We recommended that TAS review its governance and management structures, and the capability of staff and systems, to ensure that they continue to be appropriate given the significant changes to TAS. We also recommended that TAS improve its internal control environment.

South Island Region

2.74
We issued an unmodified opinion on South Island Shared Services Agency Limited, with an emphasis of matter paragraph drawing attention to the preparation of the financial statements on a realisation basis. This was because the company ceased operating from 1 December 2011 when its operations and staff were transferred to the South Island Alliance Programme Office (SIAPO).

2.75
SIAPO is hosted by Canterbury DHB and will report directly to the South Island Alliance Leadership Team (made up of the South Island DHB chief executive officers).

Future focus

2.76
The expanding size and scope of functions for these agencies – in particular, healthAlliance – can present challenges and risks for the agencies and the DHBs they support. This includes the need to ensure that they have the required capability and capacity, systems, processes, and appropriate governance and oversight to effectively support the DHBs.

2.77
Our auditors will continue to consider these matters in deciding the areas of focus and risk for their annual audits. We are also considering how we can more effectively audit entities that are working collaboratively, with more services and organisational functions being provided by shared service agencies.

Audit results for the Ministry and other Crown entities

2.78
We set out below the audit results for the Ministry and the nine non-DHB health sector Crown entities that we audited in 2011/12.

2.79
The health Crown entities, including entities disestablished in 2011/12, are listed in Figure 12.

Figure 12
Health sector Crown entities and Crown entities disestablished in 2011/12

Health sector Crown entities
Health and Disability Commissioner
Health Quality and Safety Commission
Health Research Council of New Zealand
New Zealand Blood Service
Pharmaceutical Management Agency
Crown entities disestablished in 2011/12
Alcohol Advisory Council of New Zealand
Crown Health Financing Agency
Health Sponsorship Council
Mental Health Commission

2.80
We issued unmodified audit opinions in 2011/12 for all the entities listed in Figure 12. We also highlighted in our audit reports that the financial statements of the four disestablished entities were appropriately prepared on a dissolution basis.

2.81
The role and functions of the Ministry and other Crown entities underwent changes in 2011/12 as the sector continued to evolve. For example, in conjunction with the Crown entities being disestablished, the Ministry took on additional functions and a new Crown entity, the Health Promotion Agency, was set up on 1 July 2012. We will audit the new Health Promotion Agency for the first time in 2012/13.

2.82
The role of Pharmac also expanded as it took on responsibility for managing hospital medicines, the national immunisation schedule, and hospital medical devices.

Ministry procurement and contracting

2.83
The Ministry contracts with a large number of organisations, including health providers within and outside of the Government, to provide health-related services, worth about $2.8 billion annually.

2.84
Although the Ministry has a good overall policy framework, its challenge for some years now has been the consistent application of policy on a day-to-day basis. The Ministry has taken steps to improve compliance, but significant issues remain. To help address this in 2011/12, the Ministry engaged an external reviewer to review national services purchasing and contract management.

2.85
The reviewer recommended improvements in procurement management, contract management, and value for money. We expect the Ministry to prioritise its response and implement improvements, including lifting the level of compliance with procurement policies.

Assessing the management environment, systems, and controls

2.86
In the health sector, we assess and grade the management environment, systems, and controls of the Ministry and other Crown entities, as we do for DHBs. We report each entity's results to its management team and, where applicable, to the governing board. We also report the results to the Minister of Health and the Health Committee of the House of Representatives. We did not grade the four disestablished entities.

2.87
Figure 13 shows grades for 2010/11 and 2011/12 for the three aspects that we grade. It shows improvements in grades for three entities from the previous year: the Ministry, the Health Quality and Safety Commission, and the New Zealand Blood Service.

Figure 13
Summary of other health entities' grades for environment, systems, and controls, 2010/11 and 2011/12

Other health entities	Year audited	Management control environment	Financial information systems and controls	Service performance information and associated systems and controls
Ministry of Health	2011/12	Good	Good	Good
	2010/11	Good	Good	Needs improvement
Health and Disability Commissioner	2011/12	Good	Good	Good
	2010/11	Good	Good	Good
Health Quality and Safety Commission	2011/12	Good	Good	Needs improvement
	2010/11	Needs improvement	Needs improvement	Needs improvement
Health Research Council of New Zealand	2011/12	Very good	Very good	Good
	2010/11	Very good	Very good	Good
New Zealand Blood Service	2011/12	Very good	Very good	Very good
	2010/11	Very good	Good	Good
Pharmac	2011/12	Very good	Very good	Needs improvement
	2010/11	Very good	Very good	Needs improvement

2.88
The management control environment and financial information systems and controls were all graded as either "very good" or "good" in 2011/12. This means that we do not have any significant concerns. Our appointed auditor recommended improvements that would be beneficial for three of the six entities.

2.89
The Health Quality and Safety Commission improved its grades from "needs improvement' to "good" for both the management control environment and its financial information systems and controls. These improvements reflect the Commission's good progress in developing its control environment since the Commission was established in November 2010.

2.90
We graded the service performance information and associated systems and controls as "good" for three entities and "needs improvement" for two. We continue to work with health sector entities to help ensure that they clearly report their performance so that a reader can understand what the entity did, what it achieved, and the affect it had.

2.91
The New Zealand Blood Service was graded as "very good", which puts it (with Canterbury DHB) among the top 4% or so of public entities that we graded as "very good" in 2011/12.

Final audits for disestablished entities

2.92
We carried out final audits for four health Crown entities that were disestablished from 1 July 2012:

• the Alcohol Advisory Council of New Zealand and the Health Sponsorship Council, whose functions were taken over by the new Health Promotion Agency;
• the Mental Health Commission, whose functions were transferred to the Health and Disability Commission or the Ministry (or discontinued); and
• the Crown Health Financing Agency, whose functions were transferred primarily to the Ministry.

2.93
For all four entities, our audit report included an explanatory note highlighting that the financial statements were appropriately prepared on a disestablishment basis.

2.94
We did not assess and grade the entities' management environment, systems, and controls when we carried out the final audits. This is because the grades reflect our recommendations for improvement, and deficiencies identified during the final audit of a disestablished entity might not be relevant to any new entity or any entity that takes on the disestablished entity's functions.

2.95
However, we did report our audit findings and any significant issues to any new entities and the responsible Minister. Risks facing disestablished entities include potential loss of key staff and capability, and the breakdown of internal controls and organisational performance. Overall, our auditors found that all four disestablished entities maintained sound systems and controls up to the date of their disestablishment.

Audit results for regulatory authorities

2.96
We audit the 16 health-related regulatory authorities whose members are appointed by the Minister of Health under the Health Practitioners Competence Assurance Act 2003 (see Figure 14). We also audit two secretariats that each support two or three of the authorities.

Figure 14
Health regulation authorities and secretariats

Health regulation authorities
Dental Council of New Zealand
Dietitians Board
Medical Council of New Zealand
Medical Radiation Technologists Board
Medical Sciences Council of New Zealand
Midwifery Council of New Zealand
New Zealand Chiropractic Board
New Zealand Psychologists Board
Nursing Council of New Zealand
Occupational Therapy Board of New Zealand
Optometrists and Dispensing Opticians Board
Osteopathic Council of New Zealand
Pharmacy Council of New Zealand
Physiotherapy Board of New Zealand
Podiatrists Board of New Zealand
Psychotherapists Board of Aotearoa New Zealand
Health regulation authority secretariats
Health Regulatory Authorities Secretariat Limited
Medical Sciences Secretariat

2.97
The authorities are responsible for the registration and oversight of health professions. Each authority prescribes scopes of practice and necessary qualifications for its profession, registers practitioners, and issues annual practicing certificates. The authorities are funded by their professions (through membership fees).

2.98
In our audit reports for the 16 authorities and two secretariats in 2011/12, we drew attention to uncertainty about the delivery of office functions of the authorities in the future of the health-related regulatory authorities and secretariats. In February 2011, Health Workforce New Zealand issued a consultation document proposing a single shared secretariat and office function for all 16 regulatory authorities.

2.99
The authorities are working together on a business case for moving to shared administrative secretariat functions. Potential changes could include co-location, shared IT systems, and re-structuring board, management, and staff.

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4: There are three types of modified opinions: an "adverse opinion", a "disclaimer of opinion", and a "qualified" opinion.

5: The IT Health Board, a subcommittee of the National Health Board, provides strategic leadership on information systems throughout the sector.

6: InterRAI is a technological system to improve information about quality of care.

7: Available on our website, www.oag.govt.nz.

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