Part 1: Background
Why is there an Auditor-General?
Parliament authorises all government spending and gives statutory powers to public entities. Public entities are accountable to Parliament (and their communities in the case of local government) for how they use the resources and powers that Parliament gives them. Parliament seeks independent assurance from the Controller and Auditor-General (the Auditor-General) that public entities are using these resources and powers, and are accounting for their performance, in the way that Parliament intended.
The Auditor-General's role is to help Parliament in its scrutiny of executive government, to ensure that public entities are effective, efficient, and accountable. To be effective and credible in this role, the Auditor-General must be independent of the Government and operate in an apolitical manner. The Auditor-General is an Officer of Parliament and does not comment on the policies of the Government or local authorities.
Consulting with members of Parliament on the proposed annual work programme is one way in which the Auditor-General supports Parliament's scrutiny of executive government. To preserve independence however, the Auditor-General makes the final decision about the work programme in the context of the multi-year work programme.
The Auditor-General's work
The Auditor-General is the auditor of all public entities. Figure 1 provides a summary of the number and type of entities audited in 2016/17.
Each year, we also expect to carry out audits of the following:
- the financial statements of the Government;
- the Government of Niue, its subsidiaries, and other associated entities;
- the Government of Tokelau; and
- entities the Auditor-General has agreed to audit under section 19 of the Public Audit Act 2001.
Our accountability system places responsibility on public entities to account annually for their performance. Public entities do this mainly through their Annual Reports, which include financial information and, where relevant, performance information.
Figure 1
Summary of our audit portfolio at March 2017
| Entity categories | Entities | Subsidiaries and related entities | Total |
|---|---|---|---|
| Central government entities | |||
| Government departments | 38 | 16 | 54 |
| Crown research institutes | 7 | 24 | 31 |
| District health boards | 20 | 20 | 40 |
| Tertiary education institutions | 27 | 97 | 124 |
| Other Crown entities | 65 | 17 | 82 |
| Other central government entities | 92 | 21 | 113 |
| State-owned enterprises and mixed-ownership companies | 17 | 91 | 108 |
| Rural education activities programmes | 14 | - | 14 |
| Schools | 2421 | 46 | 2467 |
| Local government entities | |||
| Local authorities | 78 | - | 78 |
| Council-controlled organisations | - | 172 | 172 |
| Exempt council-controlled organisations | - | 30 | 30 |
| Other local government entities | - | 59 | 59 |
| Energy, airport, and port companies | |||
| Energy companies | 20 | 53 | 73 |
| Airport companies | 19 | 3 | 22 |
| Port companies | 12 | 26 | 38 |
| Other public entities | |||
| Fish and game councils | 15 | - | 15 |
| Licensing and community trusts | 19 | 19 | 38 |
| Administering bodies and boards | 39 | - | 39 |
| Cemetery trusts | 92 | - | 92 |
| Total | 2995 | 694 | 3689 |
The Auditor-General's work gives assurance to Parliament, public entities, and the public that public entities' financial statements and performance information fairly reflect the results of their activities.
The Auditor-General can also audit whether public entities carry out their work effectively and efficiently, and whether they act with due probity, comply with legislation, and are financially prudent.
The Auditor-General reports on findings and makes recommendations so that those responsible for making improvements can do so. The Auditor-General also highlights examples of good practice that can help to improve how the public sector operates.
Providing assurance
The Auditor-General has a statutory duty to audit every public entity that is required to publicly report. Most of our work (currently about 87%) comprises annual audits of public entities.
Annual audits provide independent assurance about the reliability of financial statements – and, in many instances, performance information – that public entities are required to report. The Auditor-General, as the auditor of all public entities, has a statutory duty to audit that information. The Auditor-General appoints an auditor to audit each public entity. These appointed auditors issue an audit report for each audit, which includes our opinion about the fairness of the presentation of the financial statements (and performance information where relevant).
To give governors and managers of public entities assurance about significant matters, we also prepare management reports. These detail our main findings and recommendations, and help governors and managers to understand how well their management systems and controls are working. A management report may include, for example, our views on how well a public entity manages its resources and performance, including its operational policies and practices, and how it manages risks. A management report may also include recommendations about how a public entity can improve the reporting of its performance.
Forming an audit opinion on financial statements and performance information requires us to look at the underlying accounts and records, including the systems and processes used to generate this information. Auditing standards require us to have a risk-based approach to gathering and assessing audit evidence. To address identified risks, we seek evidence that financial balances, reported performance, and disclosures are reasonable.
Each year, before commencing our annual audits, we prepare an audit brief for each category of public entities. An audit brief provides instructions and guidance for the auditors of those entities.
After our audits of the public entities in each significant sector are complete, we collate the results of the audits, including our understanding of the entities and their internal control systems. This allows us to identify and report on any systemic problems and opportunities for improvement.
We use our annual audits to gather information about public entities and to help advise select committees in their work in holding public entities to account as part of Parliament's scrutiny of executive government.
Performance audits, inquiries, and other work
The Public Audit Act 2001 empowers the Auditor-General to carry out performance audits to inquire into how a public entity uses its resources, and to carry out other work supporting the role of the Auditor-General.
Each year, we publish reports on the results of our annual audits, performance audits, major inquiries, and other work. Through this reporting to Parliament and other stakeholders, we are able to consider matters in greater depth than is appropriate within the scope of an annual audit, and examine ways that public entities can perform better.
We also:
- advise Parliament and select committees, to support annual reviews and Estimates' examinations;
- carry out and report on our responsibility under the Local Government (Auckland Council) Act 2009 to review the service performance of Auckland Council; and
- consider enquiries from ratepayers, taxpayers, and members of Parliament.
In addition, we aim to strengthen public sector accountability and promote good governance by sharing our knowledge, skills, and expertise with other audit bodies throughout the world, particularly in the Pacific region. We take part in national and international organisations, forums, and working groups that develop accounting and auditing guidance and standards. These groups include:
- the New Zealand Accounting Standards Board and the New Zealand Auditing and Assurance Standards Board (both sub-boards of the External Reporting Board);
- the Global Audit Leadership Forum; and
- the International Organisation of Supreme Audit Institutions (INTOSAI) and its various committees and working groups.
New Zealand chaired the Professionalisation theme at the December 2016 International Congress of Supreme Audit Institutions in Abu Dhabi. The discussions focused on how INTOSAI could become a more influential international organisation acting in the public interest. INTOSAI's contribution to the United Nations' 2030 Agenda for Sustainable Development was also examined in this international forum. These discussions provided useful context for the Sustainable development theme we are considering for our work in 2019/20.
Our work to improve public sector auditing in the Pacific is part of our commitment to the Pacific Association of Supreme Audit Institutions (PASAI). PASAI is the official association of supreme audit institutions in the Pacific, and is one of the regional working groups within INTOSAI. The Auditor-General is also the Secretary-General of PASAI.