Part 1: Introduction

Central government: Results of the 2012/13 audits (Volume 2).

1.1
This report discusses the results of our 2012/13 audits of central government agencies – public entities in the central (rather than local) government sector. They include:

  • government departments (and their subsidiaries);
  • Crown entities (and their subsidiaries);
  • companies that are partly owned by the Crown and partly in private ownership (called "mixed ownership model" companies);
  • public entities that do not fall neatly into other categories, such as the New Zealand Police and the Parliamentary Service; and
  • the Student Loans Scheme and the Financial Statements of the Government.

1.2
There are different types of public entities, with different governing legislation. They include State-owned enterprises, Crown research institutes (CRIs), school boards of trustees, Māori trust boards, district health boards (DHBs), and tertiary education institutions (TEIs). In this report, we sometimes discuss the wider group of central government agencies. At other times, we focus on a subset (such as CRIs).

1.3
Because of the size and significance of DHBs, schools, and State-owned enterprises, we will be reporting more fully on their audit results in separate reports.

The operating context for central government entities

1.4
The operating environment for central government agencies in 2012/13 was marked by ongoing fiscal constraint, a strong focus by the Government on better public sector performance, significant changes to governance arrangements, and the implementation and consolidation of structural changes.

1.5
As well as a drive for greater effectiveness and efficiency, we also saw a trend towards greater centralised guidance and monitoring. Privacy and security, and associated issues with information management and sharing, have gained prominence, and we expect this to continue.

The Government's stated priorities

1.6
The Government has set, and repeatedly confirmed, four priorities for its term:

  • responsibly managing the Government's finances;
  • building a more productive and competitive economy;
  • delivering better public services within tight fiscal constraints; and
  • supporting the rebuilding of Christchurch.

1.7
The Government has remained committed to posting a surplus in 2014/15 and to reducing its debt. In May 2013, the total Crown operating balance before gains and losses (sometimes called OBEGAL) was forecast to improve from a deficit of $6.3 billion in 2012/13 to a deficit of $2.0 billion in 2013/14.

1.8
The 2012 Budget outlined the Government's spending priorities and expectations for 2012/13 within the context of these financial constraints. Central government agencies were expected to implement significant new initiatives that covered health services, early childhood education, school funding to lift students' achievement, welfare reforms, new justice sector programmes, tertiary education initiatives, and social housing reform.

1.9
In support of the economy, the Government has also put a focus on investment in research and innovation. During the year, a number of thematic Business Growth Agenda progress reports set out how the Government intended to support businesses to deliver more and higher-paying jobs for New Zealanders.

1.10
Rebuilding Christchurch and support for Canterbury has continued to be a focus for the Government. The most recent estimate is that the Canterbury earthquake recovery will cost the Crown about $14.9 billion.1 The Economic Recovery Programme for Greater Christchurch, which was launched in December 2012, laid out a "roadmap" for economic recovery in the region. Public and private investment in 20 projects, identified as the most important for the recovery, was estimated at $20 billion to $30 billion.

Focus on reform – the Better Public Services programme

1.11
The operating environment for government departments changed significantly in 2012/13 as a consequence of the Better Public Services (BPS) programme.

1.12
The BPS programme was launched by the Prime Minister in March 2012. The Government is expecting public entities to improve their service delivery and transform the way they operate. Major components include:

  • a focus on results;
  • people-centred service design and delivery;
  • delivering effective spending and efficiencies; and
  • building capability to deliver services in the best way.

1.13
Three months after the launch, the Government announced specific outcomes that government departments were expected to achieve by 2017. The outcomes were focused on:

  • reducing long-term welfare dependence;
  • supporting vulnerable children;
  • boosting skills and employment;
  • reducing crime; and
  • improving interaction with the Government.

1.14
In May 2012, Cabinet also made decisions about a range of institutional and governance matters related to the BPS programme. Amendments were made to the Public Finance Act 1989, the State Sector Act 1988, and the Crown Entities Act 2004, and they took effect in July 2013. The changes will affect how public entities covered by these Acts account for their performance.

Stronger guidance and monitoring from the centre

1.15
The Treasury, the State Services Commission (SSC), and the Department of the Prime Minister and Cabinet (DPMC) aim to act as a "corporate centre", to help ensure successful implementation of the BPS programme (and, more generally, overseeing public sector performance and improvements). A joint Treasury-SSC Performance Hub to carry out performance monitoring of the State sector2 and provide advice on improving its performance was established in February 2013.

1.16
Also, Performance Improvement Framework (PIF) reviews of government departments are conducted to identify organisational strengths and areas for improvement. At least 26 PIF reviews or follow-up reviews were published in 2012 and 2013. An overview of insights from PIF reviews to date summarised best practice guidance and also drew attention to core weaknesses common to central government agencies, several of which were linked to efficiency.3

1.17
The Treasury also leads the "Optimise Finance" initiative to improve processes, enhance people capacity, and strengthen demand for better financial management in the State sector. The Department of Internal Affairs was the lead agency for a related initiative for human resources. The "Optimise HR" programme was a collaborative initiative by six agencies to develop shared human resource services. This has progressed to procurement of a common capability model. CRIs are also using a joint initiative – "Snaphire" – for recruitment.

Continued focus on effectiveness and efficiency

1.18
Cabinet decided on 1 October 2012 to put in place functional leadership roles for information and communications technology (ICT), procurement, and property. According to one of the Cabinet papers, functional leadership is "aimed at securing economies or efficiencies across departments, improving services or service delivery, developing expertise and capability across the Public Service, and ensuring business continuity."

ICT – strong guidance from the centre

1.19
ICT functional leadership is exercised by the Government Chief Information Officer (GCIO). In June 2013, the Department of Internal Affairs published the Government ICT Strategy and Action Plan to 2017. The document emphasises the significance of ICT for transforming service delivery and outlines a programme of actions.

1.20
Also in 2013, Cabinet agreed to extend ICT functional leadership to ICT assurance. The GCIO has responsibility for co-ordinated oversight and delivery of system-wide ICT assurance. The assurance function was created after a number of security and privacy incidences at central government agencies in 2012/13 and a review of the Government's ICT systems in December 2012. The review found that privacy and security processes within many agencies were under-developed and relied too much on the individual skills and capabilities of staff and suppliers.

Procurement – an all-of-government approach

1.21
The reform of government procurement is intended to improve procurement capability and co-ordination and reduce cost. For example, all-of-government contracts establish a single supply agreement between the Crown and approved suppliers of selected goods and services. The contracts are intended to deliver a range of benefits, including saving costs to public entities and taxpayers and productivity gains for public entities and suppliers.

1.22
The first four all-of-government contracts started in July 2010 for office consumables, vehicles, laptop/desktop computers, and print devices. There are now all-of-government contracts for legal services, air travel, travel management, electricity, recruitment, advertising, and mobile voice and data services. The Ministry of Business, Innovation and Employment (MBIE) identified savings from the initiatives totalling $92.6 million to September 2013. As at December 2013, the first four all-of-government contracts were taken up by between 67% and 95% of the 129 targeted agencies.

1.23
In March 2013, Cabinet directed MBIE to lead a three-year project called "Streamlined Contracting with NGOs". The project aims to reduce variance in, and duplication of, contract management practices among central government agencies and reduce the compliance burden on non-governmental organisations.

1.24
There are other initiatives under way to change the approach to contracting between central government agencies and third parties. The Investment in Services for Outcomes initiative, led by the Ministry of Social Development, is designed to shift contracting with third parties from an output to an outcome basis.

Other measures to improve efficiency

1.25
Many government departments' four-year plans identify financial pressures, often linked to anticipated increases in personnel costs. Those pressures are also pushing the search for greater efficiencies, and some government departments are looking at significant changes to their business models.

1.26
There is a continued emphasis on reducing administration costs, building on the Better Administrative and Support Services initiative that was established in 2009. The initiative seeks to lower costs and strengthen the efficiency of State-sector administration and support services (such as finance, human resources, ICT, procurement, and corporate/executive services).

Structural changes

1.27
Mergers and structural changes have been one means by which departments have sought to realise efficiencies and savings, although this tends to be only one of several objectives for amalgamations.

1.28
There have been several significant mergers in the past few years. The largest in 2012/13 was the creation in July 2012 of MBIE. MBIE brought together the functions of the previous Ministry of Economic Development, Ministry of Science and Innovation, Department of Labour, and Department of Building and Housing.

1.29
Mergers from previous years – such as the creation of the Ministry for Primary Industries (from the Ministry of Agriculture and Forestry, the Ministry of Fisheries, and the New Zealand Food Safety Authority) and the Department of Internal Affairs' integration with the National Library and National Archives – continued to be a focus for the departments concerned. They are working to unify their operations, and some have made significant redundancy payments in recent years.

Managing assets

1.30
In 2013, we published a report called Managing public assets. In it, we highlighted the importance of having and following asset management plans, understanding the need for maintenance and renewals, and of reporting to decision-makers about these matters.

1.31
Raising productivity in the public sector by better asset management is an important part of the Government's economic plan. The Crown owns $110 billion of property, plant, and equipment.4

1.32
The Government has established a specialist infrastructure unit, the National Infrastructure Unit, within the Treasury. The Unit takes a national overview of infrastructure priorities – providing cross-government co-ordination, planning, and expertise.

1.33
The Unit's responsibilities include monitoring progress on a 20-year National Infrastructure Plan and establishing cross-government frameworks for appraising infrastructure projects and managing capital assets. The 2011 National Infrastructure Plan, released on 4 July 2011, provides a framework for infrastructure development, sets out guiding principles to respond to infrastructure challenges, and outlines a programme of action to drive change.

Expectations of public entities' behaviour

Stronger focus on system-wide stewardship

1.34
Changes to the State Sector Act 1988 include provisions that emphasise the concept of "stewardship" – the responsibility to look after the Crown's medium-and long-term interests, not just agencies' particular portfolio responsibilities. This means that chief executives will be expected to focus on performance throughout the State sector and on maximising their collective effect.

Collaboration and sector leadership

1.35
There is an increasing expectation of sector-level co-ordination and collaboration to ensure that central government agencies jointly focus on planning, resourcing, and delivering sector outcomes. Examples of structures for sector leadership include:

  • the Justice Sector Leadership Board and the Justice Sector Fund, a mechanism that allows the transfer of savings between agencies;
  • the Social Sector Forum, where the Ministry of Social Development's chief executive is mandated by Cabinet to lead the forum of relevant chief executives (including the chief executives of the Ministries of Health and Education); and
  • the Border Sector Governance Group, which shares the governance of border security matters.

1.36
There is a clear expectation that collaboration among central government agencies should support joined-up front-line services. An example is the cross-agency approach outlined in the 2012 White Paper for Vulnerable Children and associated Children's Action Plan, which envisages joint service delivery in New Zealand's regions.

1.37
Public entities in the science and innovation sector are expected to work closely together to optimise their effectiveness and be more efficient. Lincoln University and three CRIs (AgResearch Limited, Landcare Research (New Zealand) Limited, and New Zealand Institute for Plant and Food Research Limited) are working with DairyNZ Limited in developing a new "innovation hub" at Lincoln, while Callaghan Innovation is developing a high-value manufacturing sector innovation precinct at its Gracefield site in Lower Hutt.

More medium-term strategic planning

1.38
Financial constraints have led to a greater emphasis on prioritisation. The preparation of four-year plans (known in 2012 as four-year Budget plans) has become an integral part of the annual budget process. Public entities are required to outline their medium-term priorities and spending intentions, resourcing needs, any funding gaps, and areas where they envisage efficiency gains.

Centralisation of planning but devolution of service delivery

1.39
The trend to greater centralisation and more co-ordination in areas such as information technology and procurement exists alongside initiatives that devolve decision-making to the local and community level. A range of innovative approaches to working with communities are under way, including social sector trials and Whānau Ora, which have in common the intention that communities have greater influence on the provision of government services.

1: New Zealand Treasury, Budget Policy Statement 2014, page 11.

2: See the website of the State Services Commission (www.ssc.govt.nz) for A guide to New Zealand's central government agencies. There are many subsets of entities, and the terms used to describe the different groups of agencies are often similar (such as public service, State services, and State sector).

3: State Services Commission (April 2013), Core Guide 3: Getting to Great; Lead Reviewer insights from the Performance Improvement Framework, Wellington.

4: As at 30 June 2013. Investment Statement: Managing the Crown's Balance Sheet, the Treasury, 26 March 2014, page 24.

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