Auditor-General's overview

This report sets out the results of my audit of the Financial Statements of the Government of New Zealand for the year ended 30 June 2015 (the Government's financial statements) and of carrying out the Controller function. Both are essential components of New Zealand's public financial management system.

I am pleased to report that I have issued an unmodified audit opinion on the Government's financial statements. The financial statements give an account of what the New Zealand Government earns, spends, owns, and owes.

My role is to provide assurance to Parliament that the way the Treasury has reported in the Government's financial statements fairly reflects the Government's financial performance and position. The Controller work complements that. As the Controller, I check that government departments do not spend more money than Parliament has approved and that they have spent money for its intended purposes.

These are not trivial matters. Establishing that the Government's books are trustworthy is fundamental to public accountability, as is the principle that the Government spends only what Parliament has approved.

The Government's financial statements do not exist in isolation. This report draws on the many individual audits of central government organisations. That said, many specific issues covered in individual audits are not significant enough to feature in this report.

Some of the issues that I highlight in this report are of interest not only from a financial reporting perspective. They indicate the complexity of issues that concern a large number of New Zealanders – assessing the cost of the Canterbury rebuild is one example.

Investing in, and managing, the Crown's assets

The Government's financial statements record the Crown's assets, as at 30 June 2015, at $278.7 billion. This is a $21.9 billion (9%) increase on the previous year. Financial assets make up 49% of the Crown's asset base, with property, plant, and equipment making up 45% of total assets.

One of the more interesting challenges in preparing and auditing the Government's financial statements involves deriving and verifying the values of property, plant, and equipment assets (fixed assets), many of which are large, complex, and specialised. Particular areas of focus in our 2014/15 audit included the valuations of the state highway network, Solid Energy's assets, railway network assets, and the Government's social housing stock (see Part 2).

We note with interest the Treasury's work to improve investment decisions and asset management practices across the State sector. Recent Treasury initiatives include its Investment Statement, Thirty Year New Zealand Infrastructure Plan 2015, and development of Cabinet Office Circular (15) 5 – Investment Management and Asset Performance in the State Services (see Part 1). The latter requires investment-intensive agencies to produce long-term investment plans (covering at least 10 years) and asset management performance measures.

We will play a complementary role in our audit work, which will be driven by my 2015/16 work programme theme, Investment and asset management. As part of this theme, my Office is looking at the Government's investment strategy and will examine the four-year plans of selected asset-intensive or investment-intensive agencies. We are taking a special interest in the extent and maturity of long-term asset planning and management practices, including financial forecasts.

Given the significance of financial assets to the Crown's balance sheet, I will report on how the financial assets are managed, governed, and monitored.

Rebuilding Canterbury

The net annual operating costs incurred by the Crown for the Canterbury earthquake recovery continue to decline, while capital expenditure increases as the Government invests more heavily in rebuilding assets and infrastructure. Some challenges continue with how the costs are accounted for and reported (see Parts 2 and 3).

Since 2011, my reports on the audits of the Government's financial statements have identified significant uncertainties with the estimated costs of the Canterbury rebuild. My reports have given reassurance that the Treasury has reasonably estimated the total cost and associated liabilities. However, significant uncertainties still remain, particularly for the valuation of liabilities and associated insurance recoveries (see Part 2).

These uncertainties have challenged accounting and reporting practice. This, in turn, has led to some appropriation breaches (see Part 3).

Financial management and reporting

The preparation and audit of the Government's financial statements relies on a finely tuned financial management and reporting system, run by the Treasury. The publicly owned entities whose financial results are sent to the Treasury and included in the Government's financial statements must also present their annual statements to my auditors in a timely manner. My auditors provide assurance on both the financial statements of the individual reporting entities and the whole-of-government financial statements. I issued my audit report on the 2014/15 Government's financial statements on 30 September 2015, as required.

The Public Finance Act 1989 (section 45D) requires government departments to provide the Auditor-General with all information for audit by 31 August. Considerable pressure can be placed on my auditors when government entities are late in providing satisfactory draft financial and performance statements to my auditors.

For the 2014/15 audits, some government departments provided annual report information to my auditors that was late or, if provided on time, was incomplete or inadequate. The lateness and poor quality of information and draft reports initially provided not only created more work for my auditors but that work also needed to be completed in a tighter time frame.

I would like to see more attention being committed to good quality financial and performance reporting to ensure that entities provide a robust and transparent account of themselves to Parliament and the public in a timely manner.

Lyn Provost
Controller and Auditor-General

4 December 2015

Photo acknowledgement: Lynley Jenkins