Part 3: Overall results and observations
3.1
In this Part, we summarise our findings on the extent to which public entities met their reporting deadlines during 2013/14.
3.2
We also make some observations and ask some questions about the public reporting expectations for some types of entity. In our view, entities should actively consider the accountability and associated reporting requirements when establishing subsidiaries or other related entities.
3.3
In Parts 4-7, we set out the detailed results of our analysis by type of entity. We name the entities that have not met their reporting deadlines. Where appropriate, we provide an update of how those entities have performed.
3.4
Figure 2 summarises the timeliness of reporting by public entities during 2013/14.
Figure 2
Timeliness of reporting by public entities during the 12 months to 30 June 2014
| On time | Late | Not been issued | Total | |
|---|---|---|---|---|
| Central government entities | ||||
| Government departments | 48 | 5 | 1 | 54 |
| Crown research institutes | 33 | 2 | 0 | 35 |
| District health boards | 36 | 5 | 6 | 47 |
| Tertiary education institutions | 119 | 6 | 15 | 140 |
| Other Crown entities | 142 | 4 | 0 | 146 |
| Other central government entities | 89 | 12 | 6 | 107 |
| State-owned enterprises and mixed-ownership companies | 104 | 17 | 1 | 122 |
| Rural education activities programmes | 12 | 2 | 0 | 14 |
| Schools | 1116 | 608 | 737 | 2461 |
| Local government entities | ||||
| Local authorities | 72 | 6 | 0 | 78 |
| Council-controlled organisations | 159 | 15 | 5 | 179 |
| Exempt council-controlled organisations | 25 | 3 | 1 | 29 |
| Other local government entities | 50 | 9 | 4 | 63 |
| Energy, port, and airport companies | ||||
| Energy companies | 70 | 1 | 0 | 71 |
| Port companies | 34 | 1 | 1 | 36 |
| Airport companies | 23 | 0 | 0 | 23 |
| Other public entities | ||||
| Fish and game councils | 15 | 0 | 0 | 15 |
| Administering boards and bodies | 6 | 17 | 15 | 38 |
| Cemetery trusts | 8 | 68 | 19 | 95 |
| Licensing and community trusts | 27 | 8 | 4 | 39 |
| Māori trust boards | 5 | 1 | 5 | 11 |
| Section 19 entities | 4 | 2 | 0 | 6 |
| Total | 2197 | 792 | 820 | 3809 |
3.5
Over time, we have seen improvements in entities meeting their reporting deadlines. However, we have also seen certain types of entities, such as subsidiaries and other small entities, struggle to report on time year after year.
The results of our analysis
3.6
Our analysis focuses on the 3809 audit reports that we expected to issue between 1 July 2013 and 30 June 2014, rather than those for previous reporting periods.
Schools
3.7
Of the 3809 expected audit reports, 2461 (64%) were for schools. Many (45% or 1116) schools met the reporting deadline of 31 May 2014. A quarter (25% or 608) were late but issued by 30 June 2014, leaving 30% (737) not issued at that date. As at 24 March 2015, slightly more than a year after the balance date, 40 school audit reports had not been issued.
3.8
Many schools failed to meet their reporting deadlines because of significant delays in receiving reliable data from the Novopay payroll system. Normally, between 90-95% of school audit reports are issued by the reporting deadline of 31 May.3
3.9
Novopay also affected the timely completion of audit reports for the previous year. However, Novopay is not the only reason for audit reports being late or not issued. Of the 40 schools whose audit reports had not been issued by 24 March 2015, seven schools had more than one year's audit report not issued. There are various reasons for this, but the delay is often because of poor financial management and/or poor governance at the school.
Public entities other than schools
3.10
Our analysis shows that, for the remaining 1348 audit reports we expected to issue:
- 1081 audit reports (80%) were issued on or before the deadline;
- 184 audit reports (14%) were issued late; and
- 83 audit reports (6%) had not been issued as at 30 June 2014.
Why do entities not meet their reporting deadlines?
3.11
One of the most common reasons offered for delays in issuing audit reports is that entities do not make the appropriate information available to the auditors. Our experience and observations from auditors suggest that the skills and capability levels in public entities can be an important factor in why information is not available.
3.12
In larger entities, the auditor and the entity plan the auditing timetable together, the importance of resolving questions and providing information to the auditor is well understood, and the auditor is usually working on site. In smaller entities, the information that an auditor needs might be delivered to the auditor's office, and that information can be incomplete or late.
3.13
Auditors usually have many entities to audit, often with the same deadlines. It can be difficult to return to an incomplete audit without causing delays in completing the audits for other entities. This means that an auditor can, sometimes, be partly or indirectly responsible for delays in issuing an audit report. However, the entity is usually responsible for not meeting the reporting deadlines.
3.14
We encourage entities to plan ahead and work with their auditors to ensure that they are able to meet their reporting obligations. We acknowledge the challenges some entities face, and there are sometimes legitimate reasons for delays. However, there is room for improvement when 20% of public entities (other than schools) are unable to meet their reporting deadlines.
3.15
When we prepared this report, the entities whose audit reports were issued late or had not been issued were mostly subsidiaries and small public entities.
3.16
Of the 83 entities whose audit reports had not been issued as at 30 June 2014, several had audit reports for previous years that had also not been issued. A few had more than four years of audit reports that had not been issued.
3.17
Public entities that have failed to meet their reporting obligations for successive years tend to be very small. Cemetery trustees, the boards and bodies that look after halls, racecourses, parks, and reserves (called "administering boards" and "administering bodies"), licensing trusts, charitable trusts, and small subsidiaries are disproportionately not meeting their reporting obligations.
3.18
Importantly, audits that involve significant amounts of public money and assets are largely completed and audit reports issued within the required time frames. Where there are exceptions (such as the six local authorities that did not meet their deadline for reporting), we continue to make our concerns and expectations clear.
3.19
We raise our concerns about public entities that fail to meet their reporting obligations in several ways – directly with entities, through relevant sector forums, and by publicly reporting the audit results.4
Is the balance right?
3.20
Most public entities meet their reporting obligations. Some can and need to do better. Others are struggling, which could be a result of limited internal capability to meet the requirements or questions about the value of, and priority given to, such reporting.
3.21
In our view, the balance between the costs of compliance (including audit) and the benefits to the users of those audit reports might not be right. To put this comment in context, it is useful to look at an example (see Figure 3).
Figure 3
The performance of cemetery trusts in meeting accountability requirements
| Cemetery trusts Many cemeteries are owned and operated by local authorities. There are also 95 cemetery trusts. These trusts, often run by volunteers, are required to prepare financial statements, which in turn must be audited. The audit reports for just eight cemetery trusts were issued on time. Most were issued after the deadline – on average, four-and-a-half months late. The audit reports for 19 cemetery trusts had also not been issued as at 30 June 2014. Of these, 14 trusts had audit reports for previous years that had not been issued, and one trust has not met its reporting requirements for nine consecutive years. The reporting deadline for cemetery trusts – five months after the balance date – is set by the Auditor-General. The Auditor-General will not extend the reporting deadline because that would reduce the usefulness of the audited information. Further, nothing in our experience suggests that changing the deadline would address the challenges cemetery trusts face in meeting their reporting deadlines. The challenge for each cemetery trust is different. Cemetery trusts are, generally speaking, very small entities. Only one has revenue of more than $50,000 each year. The individuals involved are committed to serving their communities, but often do not understand, or are ill-equipped to comply with, the reporting and accountability requirements associated with their roles. Our auditors help where they can, and we have made significant additional efforts in recent years to reduce the number of audit reports that have not been issued. Our challenge is balancing our independence with our desire to help these entities to meet their reporting obligations. Parliament provides us with $150,000 each year to fund the audits of cemetery trusts and administering bodies. Our actual expenditure on these audits in 2013/14 was closer to $350,000. |
3.22
We question whether some of the smaller public entities should continue to be required to publicly report each year.
3.23
The Law Commission is reviewing the Burial and Cremation Act 1964. Proposals being prepared by the Commission, if adopted, could see local authorities assume responsibility for cemeteries. We will watch with interest as this work is completed and will support proposals for an appropriate and cost-effective accountability arrangement for cemetery trusts.
3.24
Many subsidiaries of public entities are among those that did not meet their deadlines for reporting. In most instances, the failure to report on time did not affect the timeliness of the parent entity's reporting, which suggests that priority is given to group reporting rather than reporting by each subsidiary. We provide comment in Figure 4 on the performance of TEI subsidiaries.
Figure 4
The performance of subsidiaries of tertiary education institutions in meeting accountability requirements
| Tertiary education institutions Our analysis shows that the audit reports for all 29 tertiary education institutions (TEIs) were signed on or before the deadline. The audit reports for 90 of the 111 TEI subsidiaries (81%) were also issued on time. All of the late reports (six) and reports that have not been issued (15) were for subsidiaries. Further, some subsidiaries had not met the reporting obligations for previous years. One small TEI subsidiary has eight audit reports that have not been issued. In our report, Education sector: Results of the 2011/12 audits, we commented on the growth in the number of subsidiaries and the implications of that growth on time and costs to the group, including audit work. We recommended that TEIs better assess the business need for their subsidiaries and consider, in that assessment, the reporting obligations that will arise. |
3.25
Recent legislative changes (including changes to the Public Finance Act 1989, the Crown Entities Act 2004, the Companies Act 1993, and the Financial Reporting Act 1993) and changes to accounting standards have implications for the reporting requirements for many public entities. Some of the changes mean that many subsidiaries will no longer be required to report separately.
3.26
In general, this, along with the introduction of tiered reporting, should reduce the demands on smaller entities. Although the changes are driven by a desire to improve the quality of reporting, they should also contribute to improvements in the timeliness of reporting. That said, the changes made to date do not extend to all public entities. For example, the changes to the reporting requirements of subsidiaries of Crown entities do not include schools.
3.27
In our view, there is still scope to review the number of public entities that need to separately report and be subject to a separate audit. We recognise that this would require considering alternative models and options for providing assurance about the use of public expenditure, and legislative change would be required.
3.28
We actively encourage public entities to think carefully before deciding to set up new entities such as subsidiaries and other related entities. Those decisions need to be made with an understanding of the costs of the reporting requirements (including the cost of audit) for any such entity.
What are the consequences for not reporting on time?
3.29
The main focus for this report is whether public entities met their obligations to report on their performance between 1 July 2013 and 30 June 2014. However, we also looked more closely at those entities whose audit reports had not been issued as at 30 June 2014 to identify any with a history of not meeting their reporting deadlines.
3.30
A small number of public entities have not met their obligations to publicly report on their performance for two or more years.
3.31
The Auditor-General can report on the failure of public entities to meet their reporting deadlines. Many perceive this as a sanction.
3.32
More generally, the consequences will vary depending on the governance and accountability arrangements for each public entity. For entities subject to annual review by Parliament, select committees will have an interest in late reporting. The directors and boards of public entities will also have an interest in ensuring that subsidiaries and trusts meet their reporting deadlines.
3.33
Monitoring agencies such as the Ministry of Education have an interest in schools and whether they meet their reporting deadlines.
3.34
For some public entities, failing to meet reporting obligations could affect their ability to borrow or secure additional investment.
3.35
However, there is a challenge where the oversight and scrutiny of public entities is not clear or is limited. In our 2014 report, Challenges facing licensing trusts, we indicated that licensing trusts are probably the least scrutinised part of the public sector. We reported that:
No central government agency or select committee has overall oversight or monitoring responsibility for licensing trusts. This is largely because those agencies' areas of responsibility are quite narrow and specific, which does not support broader engagement.
Local authorities have responsibility to operate District Licensing Committees under the [Sale and Supply of Alcohol Act 2012], but there is no requirement that they monitor or support licensing trusts.
The lack of coherent oversight, in combination with the significant number of challenges that licensing trusts face, is a cause for concern, particularly given the assets that licensing trusts manage on behalf of their communities.
3.36
We encourage Parliament, governors, and other monitoring and oversight agencies to be alert to issues with the timeliness of reporting.
3.37
We consider that some thought should be given to the mechanisms used to provide oversight and scrutiny of public entities and whether they are effective. In general, we are not concerned, but there are some entities, such as licensing trusts, where further consideration is needed.
3: See our 2013 report, Schools: Results of the 2012 audits, "Part 3: Novopay's effect on school audits".
4: For example, we commented on the timeliness of reporting by local authorities in our 2014 report, Local government: Results of the 2012/13 audits.