Part 6: Emerging trends presenting opportunities and challenges

Reflections from our audits: Governance and accountability.

Governance in the public sector is increasingly complex

The changing public sector landscape, fiscal pressures, demographic changes, and new ways of working all demand effective governance. Cross-agency and cross-sector developments, public private partnerships, and increasing third-party service delivery are all driving changes to governance and accountability arrangements in central and local government.

Co-governance and network governance

As well as governance at the entity, programme, and project levels, there is an increasing focus on the need for governance at the sector or network level. Examples of this include changes in governance arrangements in the social sector with the establishment of the Social Sector Board, the Vulnerable Children's Board, and the Joint Venture Board to oversee the social sector trials. We have also seen an increase in the number of co-governance arrangements in the environment sector.

Our work in the environment sector found that there are new and different governance arrangements being established, with a range of purposes. We identified some principles to consider when setting up and maintaining effective co-governance and co-management arrangements. The principles are:

  • build and maintain a shared understanding of what everyone is trying to achieve;
  • build the structures, processes, and understanding about how people will work together;
  • involve people who have the right experience and capacity;
  • be accountable and transparent about performance, achievements, and challenges; and
  • plan for financial sustainability and adapt as circumstances change.

During our visits with public entities, we often hear about examples of collaboration that are working well. One such example is where Canterbury District Health Board and West Coast District Health Board have set up an alliancing arrangement. The two organisations have come together with a shared vision and put people at the centre of it. As a result, there is a strong service-delivery focus to how the district health boards work. There should be a direct benefit to the West Coast residents who should now receive better access to health services in their own community.

We have also found examples where collaboration has not been as effective. In our audit of the Whānau Ora programme, we found that the relationships between the agencies involved had not fully matured at the time of our audit. This was a barrier to achieving the full potential of Whānau Ora.

There is an increasing focus on collaboration between government agencies and between local and central government, for example in relation to Canterbury's earthquake recovery, and tackling housing and transport issues in Auckland. Increasingly, this collaboration is seen as the most effective way to solve complex problems and to ensure that entities are using public assets effectively and efficiently.

This could lead to different organisational models or structures. There is a need for governance and accountability systems to keep up with the changes arising from this collaboration. Cross-sector governing bodies need to ensure that they remain focused throughout the delivery phases of work programmes that implement strategy. These governing bodies play an important role in unblocking systemic obstacles to delivery, such as the challenges organisations face in sharing data and information due to privacy or security concerns.

But working collaboratively is not "all or nothing". Agencies still need to deliver their core business. Collaboration should be for a purpose and agencies should be deliberate about identifying those areas or topics or initiatives where collaboration is necessary, and those where they just need to get on with their own job. This is a balancing act and prioritisation is required.

Adapting governance to support changing needs

Governance models need to be adapted for the specific goals and outcomes required for different situations; one size does not fit all.

Inland Revenue plans to update the governance roles and responsibilities for the different stages of its business transformation programme, and also to support board member training. Both of these are elements of good practice.

Te Wānanga O Raukawa provides an interesting perspective on how entities can combine the requirements of the Crown with ensuring that the role of the iwi is not lost. At the Wānanga, accountability to its founding iwi is the primary concern for the Tumuaki (chief executive) and she is supported by Te Mana Whakahaere (the Council). The role of the founding iwi in the Wānanga's governance and accountability arrangements is seen as non-negotiable. This is an example of good relationships being critical to good governance.

The quality of governance in local government is coming under increasing scrutiny. Local Government New Zealand has a programme on leadership and governance. We consider that improved governance will aid better decision-making and outcomes for communities. It should also assist in enabling better accountability.

The nature and style of governance in local government is not static. It has been continually tested through structures such as the introduction of local boards in Auckland. Similarly, events have tested the strength of existing governance arrangements.

From governance to stewardship

As highlighted in Part 3, departmental chief executives have specific stewardship responsibilities for their departments. There are now also system-wide expectations for chief executives to work collaboratively with other agencies to improve service delivery and achieve outcomes.

Stewardship is not a new concept. However, as the legislative changes become more established and better understood, we expect new approaches to be taken to governing public entities and shared programmes of work that span organisational boundaries.

Accountability trends – integrated reporting

The emergence of integrated reporting provides an opportunity for agencies to better tell their whole performance story, with a focus on reporting what matters most for the individual entity and its stakeholders.

This is a broader story than general purpose financial reports currently provide. Integrated reporting aims to provide users with more information about the value and long-term sustainability of the entity.

An integrated report provides insight about the use of resources (such as funding and human resources), the external environment affecting the entity, and how important relationships with stakeholders are maintained.

Accountability trends – consultation and social media immediacy

Social media provides a channel for citizens to talk about and to public entities. Its widespread use is increasing the interaction between citizens and many public entities. It enables public entities to consult with the public in new and faster ways than traditional public consultation exercises.

Many public entities are still working out how best to take advantage of social media platforms, considering how they can best listen to feedback, and use it to improve the services they deliver.

Entities need to think about how they can best engage with their communities and stakeholders in a way that is open, able to be resourced, and that helps to improve how services are delivered.

"Bespoke" consultation processes are also emerging, sometimes in response to legislative requirements. For example, under the Local Government Act 2002, local authorities are required to have significance and engagement policies in place that outline how and when communities can expect to be asked about or involved in decisions. In our view, this consultation needs to be supported by robust processes to ensure procedural fairness. The consultation also benefits from local authorities applying sound judgement and using professional advice.

Accountability trends – where next for financial reporting?

In our report, Improving financial reporting in the public sector, we highlighted the main challenges facing standard-setters, preparers, and auditors to ensure that general purpose financial reports are relevant and useful. These include continuing to focus on users' needs; helping users understand the performance story; preparers focusing on reporting what matters most; reducing the number of reporting entities; and keeping pace with technology.

These trends will affect the nature of our audit and assurance work. For example, there is likely to be increased demand for real-time assurance for programmes and projects. We will need to continue to work closely with standard-setters and public entities to ensure that our work adapts appropriately to changes in how information is reported.