Part 5: Being accountable to the people you serve

Reflections from our audits: Governance and accountability.

5.1
Citizens hold their elected representatives accountable for their decisions and actions. These representatives, in turn, hold accountable those who implement their decisions. As noted in Part 1, public accountability enables trust in government and is vital to maintaining a healthy democracy.

5.2
In our view, public entities should consider the following elements that support effective accountability:

Meeting the public's expectations

5.3
In New Zealand, there are quite rightly high expectations of the public sector. These expectations are the foundation of good accountability. In general, good accountability comes from being guided by principles that support trust between citizens and the public sector:

  • Openness – being transparent.
  • Value for money – using resources effectively, economically, and without waste while having due regard for costs and benefits, as well as the contribution to outcomes.
  • Lawfulness – acting within the law and meeting legal obligations.
  • Fairness – meeting a general public law obligation to act fairly and reasonably.
  • Integrity – managing public resources with the utmost integrity.

5.4
The quality of information that governing bodies use to make decisions, and to inform their public reporting about their performance, are also important features in supporting effective accountability.

Meeting public reporting obligations

5.5
Public entities need to provide information about their performance so that elected representatives, stakeholders, and the public can understand what a public entity is trying to achieve, how it has used public resources, and what it has achieved.

5.6
The information needs to give a complete and accurate account of the use the entity has put public funds to, including funds passed on to others for particular purposes.

5.7
Public entities should report information in a form that their stakeholders, including the public, can readily access, and is easy to understand and use.

5.8
Our role in providing independent assurance over the financial and performance information in public reports helps Parliament and the public to "close the accountability loop", using these reports to hold public entities to account.

Improving financial and service performance reporting

Financial reporting

5.9
Most public entities are required to produce general purpose financial reports. Usually, legislation requires that the information in general purpose financial reports must comply with generally accepted accounting practice (also known as GAAP), or, for certain small public entities, non-GAAP standards.6

5.10
GAAP and non-GAAP standards are the overall body of accounting standards and other guidance issued by the External Reporting Board. The standards set out how an entity should prepare financial reports. GAAP and non-GAAP standards are a set of objective principles that are not subject to the individual preferences of the person who prepares the reports.

5.11
Our report on improving financial reporting in the public sector notes positive changes made to the accounting standards framework during the last 6-7 years. The changes mean that there is now a tailored approach to financial reporting for the public sector and a foundation for better reporting in the future.

5.12
The positive changes include establishing a single, independent accounting standard-setting body, the External Reporting Board, and adopting a new accounting standards framework for all reporting entities.

5.13
The new accounting standards framework is designed so that financial reports will better meet the needs of users. It separates accounting standards for public benefit entities from entities that have a focus on achieving a commercial return, and uses tiers to reflect the different size and nature of reporting entities in New Zealand. We encourage public entities to take full advantage of any financial reporting concessions that are available in the new tiered structure.

5.14
We also encourage public entities to take advantage of the flexibility within the new requirements by focusing on users' information needs and reporting what matters most.

5.15
The External Reporting Board also has an important ongoing role in helping to resolve some of the more challenging areas in general purpose financial reporting.

Service performance reporting

5.16
Service performance reports are expected to disclose what the entity set out to achieve and what it actually achieved. As well as supporting its accountability, an entity's service performance reporting should be focused on performance improvements and based on the information necessary to run its business. Entities can be truly accountable only if they are transparent about both their financial and service performance and the relationship between the two.

5.17
For more than 25 years, there have been statutory requirements for a range of public entities to report on their service performance. We have long been active in promoting improvements in how public entities fulfil these requirements and we have seen improvements.

5.18
We have seen some evidence of stronger performance frameworks that bodes well for improved reporting in the future.

5.19
However, there is still a fair way to go, particularly in reporting that enables users to understand an entity's longer-term strategic objectives and how well it has performed against them.

5.20
From our audits of central government and local government entities' service performance reports in 2014/15, the aspects that still require further focus and improvement by public entities are:

  • striving for more relevant performance measures that better reflect the real performance of the entity;
  • better understanding of the systems, processes, and controls required to support new measures; and
  • better internal verification processes and assurance reviews for performance reports, particularly the information from third parties.

5.21
The 2013 amendments to central government public sector legislation included changes to:

  • require more meaningful reporting on what entities intend to achieve and what they do achieve; and
  • lift the strategic focus of statements of intent to drive a clearer focus on results and outcomes.

5.22
In part, the changes were designed to bring financial (including more flexible funding arrangements) and service performance reporting closer together. Based on our 2014/15 annual audit work, it appears that many entities have yet to fully consider these amendments.

5.23
We found that some entities used their management commentary in the annual report as a substitute for reporting against formal performance measures. We do not consider this appropriate and our auditors will be discussing this with entities during 2015/16.

Don't be late – timely reporting is essential for good accountability

5.24
If public entities' reporting is not timely, the information they provide is less relevant and proper accountability is more difficult to achieve.

5.25
In our report on the timeliness of public entities' reporting in 2013/14, we found that most public entities (80%) met their reporting obligations. The entities whose audit reports were issued late or had not been issued were mostly subsidiaries of public entities and small public entities.

5.26
Some entities can and need to do better. Some 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. Not surprisingly, very small public entities struggle the most.

5.27
The recent legislative changes and changes to accounting standards mentioned above are expected to help improve the quality and timeliness of reporting by public entities. Some subsidiaries no longer need to separately report, and some other entities have had their reporting obligations simplified.

5.28
However, the balance between the costs of compliance (including audits) and the benefits to the users of those audit reports might still not be right. In our view, there are opportunities for further changes to the public accountability requirements, particularly for very small entities such as cemeteries and reserve boards.

Being open to scrutiny

5.29
High-performing organisations look for opportunities to learn and improve. They welcome feedback, see complaints as opportunities to learn, and understand the roles that internal and external audits play in providing independent assurance and advice over their activities and reporting.

Handling complaints effectively

5.30
An important aspect of effective accountability is the ease with which members of the public can make complaints if they are dissatisfied with a service they have received from a public entity, or if they want to resolve a matter of importance to them. Public entities are responsible for dealing with the complaints they receive.

5.31
In my view, making a complaint or raising a concern with a public entity can be difficult. If a person exhausts all of the entity's own complaint and review processes and remains dissatisfied, it can be difficult to work out where to go. One reason for this is that little or no easily accessible information explains the subsequent options.

5.32
New Zealand's arrangements for making complaints and raising concerns are a complex web of accountability functions and agencies. In my view, these arrangements are not as well connected as they could be. Inquiry agencies work under different pieces of legislation and, because they need to protect people's privacy, there can be challenges to regularly working together.

5.33
We consider that improving connections between inquiry agencies is likely to improve the quality and timeliness of services and improve how public services are used. I encourage all inquiry agencies to continue to collaborate and look for new ways to improve their connections with each other. In the end, improving these connections will make it easier for people to get the right help soon enough.

6: See section 18 of the Financial Reporting Act 2013 for reference to non-GAAP standards.