Part 3: Putting the governance arrangements into practice
3.1
In this Part, we look at whether the way the programme's governance has been operating is in line with our principles of good governance.
3.2
We found that the way the programme's governance was operating largely met our expectations, but that some aspects needed to be managed carefully. We describe these aspects in paragraphs 3.23-3.33.
3.3
The most important aspect to note is that the executive management team has to work at or near capacity to govern the programme, as well as govern and manage ongoing tax collection and other social policy functions.
3.4
We found that:
- for the most part, the governance structure has operated consistently with its design;
- extensive information is being provided to the governance groups – the quantity and comprehensiveness of this information is a strength but could become a weakness, particularly if the quantity and comprehensiveness detracts from the governors' capacity to digest the information and make timely decisions; and
- centralised decision-making is challenging the executive team and requires careful balancing with governance and management of ongoing tax collection.
Governance operating consistently with design
3.5
Committees such as Inland Revenue's Risk and Assurance Committee, which receives information about the programme, can make a valuable contribution to improving public entities' governance, and, therefore, performance and accountability. It can play an important role overseeing an organisation's policies, processes, systems, and controls. An effective risk and audit committee shows that an organisation is committed to a culture of openness and continuous improvement. Over time, the information that Inland Revenue's Risk and Assurance Committee receives about the programme has improved.6
3.6
Risks to the programme and decisions about the programme are thoroughly reported and recorded. Every week, the programme's governors receive reports about extreme risks; every month, they receive reports about high-level risks. We consider that this is good practice.
3.7
The information and reporting is consistent with the programme's high-risk nature. Programme documents, including the Programme Charter, acknowledge and reflect the programme's high-risk nature.
Holding managers to account
3.8
Within the programme, a high standard of performance is expected, including of the governors. Individual performance agreements have clear targets and measures of progress.
3.9
The Portfolio Governance Authority (see Appendix 1) receives clear dashboard reporting of programme progress, which allows managers to be held to account.
3.10
During our audit, we observed examples of managers being held to account for specific aspects of performance. An example was a manager reporting that a project would not be delivered on time and was over budget. The relevant governance group questioned whether the revised date and budget was achievable. The governance group also suggested that the manager take a few days to ensure that the project would be delivered by the revised date before the change in budget and timeline was approved. The governance group closely monitored the project, getting weekly updates on its progress.
Experienced capacity and capability
3.11
Inland Revenue accepts that the capacity and capability needed to govern the programme will vary.
3.12
At the time of our audit, this capacity and capability was sourced mainly from the executive team and external specialists. This brought together a mixture of public and private sector experience and skills. This is a strength, as long as the programme is integrated with business as usual in a complementary way. Decisions made about the programme have been timely and effective. However, Inland Revenue needs to ensure that the programme's staff have enough appreciation of aspects of the "machinery of government".7 Having this appreciation is central to getting things done effectively in government.
3.13
Committing executive resources shows that Inland Revenue is dedicated to ensuring that the programme works effectively. The organisation recognises the demands this puts on members of the executive team.
3.14
A deliberate decision was made to limit some executives' involvement in governance to being part of the Investment Board. This provides internal independence.
3.15
During our audit, we saw examples of self-review to help make good decisions about governance capacity and capability. For example, the Technical Architecture Design Council has considered the cross-membership of the governance groups, and the Organisational Design Council reviewed its composition. This self-review is good practice.
Understanding roles and responsibilities in practice
3.16
In Part 2, we highlighted the clarity of roles and responsibilities within the governance structure. We observed that the governance of investment decisions was clearly separate from governance of delivery and operations.
3.17
We found clear processes for approving recommendations consistent with those roles and responsibilities.
3.18
During our audit, we found some confusion about roles and responsibilities and governance processes. We did not find this confusion to be systemic. In our view, the confusion is to be expected, because of the size and complexity of the governance arrangements.
Governing consistently with clear purpose
3.19
The programme's participants have discussed its purpose extensively. This is positive.
3.20
The Programme Charter defines clear success measures for the programme, which are consistent with the programme's purpose.
3.21
Inland Revenue's staff communicate regularly about the programme using many channels.
3.22
In the second half of 2014, Inland Revenue paid significant attention to organisational development and understanding the effect of the transformation on timing, focus, and concentration in different parts of Inland Revenue. This is consistent with the programme's transformation purpose.
Matters to watch
3.23
We have identified some matters relating to how governance of the programme operates, which Inland Revenue needs to watch closely. We comment on these matters in paragraphs 3.24-3.33. They are not yet fundamental and Inland Revenue is aware of them.
A lot of information to digest
3.24
The governors of the programme receive information in a structured, comprehensive, and systematic way. This means that governors have the potential to be well informed. The risk is that important aspects are buried, and that governors do not give the full information enough attention. Inland Revenue is aware of this issue and has told us it is taking steps to reduce this risk.
3.25
Some senior Inland Revenue staff told us that the duplication and amount of information, and the time available to read it, meant that they give the information less scrutiny than they would like.
3.26
Having no shared system to manage documents adds to the difficulties of sharing information.
Stretching executive capacity
3.27
Involving members of executive teams in governance is common in public entities without governing boards. The people concerned must separate their governance and management roles in a disciplined way.
3.28
Because some of Inland Revenue's executive team members are in many governance groups (see Figure 4) and have significant work responsibilities outside the programme, there is a risk that they cannot give decisions about the programme's governance the necessary critical consideration. The capacity of executive team members to govern the programme will be further stretched if governors have to make more frequent decisions as the programme progresses.
Figure 4
Executive team cross-membership of Business Transformation programme governance groups
3.29
If some governors lack the necessary capacity to govern the programme effectively, there is a risk that:
- the programme advances more slowly or is driven too much by the programme team rather than by other needs of Inland Revenue; and/or
- decisions are made without the necessary scrutiny.
3.30
There is a statutory requirement under the Tax Administration Act 1994 for all officials, including those working on business transformation in Inland Revenue, to protect the tax system's integrity. Therefore, governance of the programme must be considered together with ongoing governance and management of the tax system.
3.31
There is also a risk to independence (making decisions on own advice), with some executive members being members of several governance groups, and a risk because of familiarity (not scrutinising information already seen in another governance group or missing changes to information already seen).
Communicating what transformation means in practice
3.32
As the programme is still only early in Stage 1, it has yet to deliver certainty for Inland Revenue's customers and staff about what transformation means for them in practice.
3.33
In our view, it is important that Inland Revenue continue to give all stakeholders as much certainty as possible about what the programme means for them at a given time. This includes certainty for the Corporate Centre stakeholders about the programme's relationship with all-of-government initiatives involving shared capability in public entities.
Recommendation to manage important risks
3.34
We have noted some of the aspects of paragraphs 3.23-3.33 in our recommendation about important risks that Inland Revenue needs to continue to manage over the life of the programme (Recommendation 2).
6: Our 2008 report Audit committees in the public sector, available on our website, contains more information about the role of audit and risk committees in the public sector.
7: The State Services Commission uses this expression to describe the structures and systems of government.