Part 4: Reporting against appropriations
In this Part, we report on the services that we were funded to deliver in 2016/17 and how well we delivered those services.
Reporting against appropriations
The Office is funded through Vote Audit, which has five appropriations:
- Audit and Assurance Services RDA (revenue-dependent appropriation);
- Audit and Assurance Services (related to audits of small entities funded by the Crown);
- Statutory Auditor Function MCA (multi-category appropriation, which covers Performance Audits and Inquiries and Supporting Accountability to Parliament);
- Remuneration of Auditor-General and Deputy Auditor-General PLA (permanent legislative authority); and
- Controller and Auditor-General – Capital Expenditure PLA.
In the pages that follow, we set out (where relevant) for each appropriation:
- the scope and what is intended to be achieved;
- an assessment of our performance, standards, and results;
- an explanation of our performance; and
- our financial performance.
Appropriation: Audit and Assurance Services RDA
Scope of appropriation and what is intended to be achieved
This appropriation is limited to audit and related assurance services as authorised by statute. It is intended to provide for audit services to all public entities (except smaller public entities, such as cemetery trusts and reserve boards) and other audit-related assurance services.
Assessment of our performance, standards, and results
| 2016/17 results and previous performance for Audit and Assurance Services RDA | |||
|---|---|---|---|
| Measure | Performance standard | 2016/17 result | 2015/16 result |
| Key recommendations our auditors include in management reports are accepted and acted on. | At least 70% | Achieved* 82% |
Achieved 82% |
| Public entities' audited reports are signed by the statutory time frame. | At least 75% | Achieved 80% |
Achieved 76% |
| Audit reports not signed by the statutory time frame are because of inaction on our part. | Less than 30% | Achieved 14% |
Achieved 7% |
| Management reports are issued within six weeks of issuing the audit report. | 100% | Not achieved 96% |
Not achieved 96% |
| Long-term plan (LTP) audit opinions are signed by 30 June (unless held up by the local authority). | 100% | Not assessed, as not an LTP year | Not assessed, as not an LTP year |
| Long-term plan (LTP) management reports are issued within six weeks of issuing the LTP audit opinion. | 100% | Not assessed, as not an LTP year | Not assessed, as not an LTP year |
| Annual independent review confirms the probity and objectivity of the methods and processes we use to allocate and tender audits, and monitor the reasonableness of audit fees. | Confirmation by annual independent review | Achieved Confirmed by independent review |
Achieved Confirmed by independent review |
| Percentage of respondents from our satisfaction survey of public entities who are satisfied with their audit (including the expertise of audit staff and the public entity's relationship with those staff). | At least 85% | Not achieved** 76% |
Not achieved 84% |
| Appointed auditors who have a quality assurance grade of at least "satisfactory", based on our most recent quality assurance review. | 100% | Not achieved 97% |
Not achieved 97% |
* For the year ended 30 June 2017, we assessed a sample of 45 entities against this measure. For the year ended 30 June 2016, we also assessed a sample of 45 entities against this measure.
** We provide more explanation about our client survey results on page 29.
Explanation of our performance
We explain below the 2016/17 results for Audit and Assurance Services RDA.
Annual audits
Our job is to independently audit and report on how public entities are performing and reporting that performance, individually and collectively. We apply independent scrutiny and professional judgement to financial audits of all public entities2 that are required, or choose, to prepare general purpose financial reports – from large government departments and district health boards to every state school and local authority. In 2016/17, our annual audits and other assurance services accounted for 88% of our total expenditure.
We use information about public entities gathered from our annual audits to help us advise Parliament and others, and to assist our other work. For Parliament and New Zealanders to have trust and confidence in the public sector, public entities must fairly report their performance and respond to audit recommendations to improve their systems and controls. They must also prepare their reports within statutory time frames. Reliable and timely information is an important indicator of a high-performing and accountable public sector.
In 2016/17, we achieved our target of at least 75% of our audit reports being signed within the statutory time frame. The reporting obligations were met on time by 80% of public entities. The 20% that did not were mostly subsidiaries of public entities, or small public entities such as schools and cemetery trusts. Schools transitioning to new accounting standards have also contributed to delays.
Our target for audit reports not signed within the statutory time frame due to our inaction is 30% or less. This year, we met our target, with 14% of the audit reports not signed within the statutory time frame being due to our inaction, compared with 7% in 2015/16. Capacity issues for some of our auditors contributed to the 7% difference between this year and 2015/16.
We have a statutory duty to issue audit reports on local authorities' long-term plans (LTPs), which are prepared every three years. We last audited LTPs in 2014/15, and will carry out the next LTP audits in 2017/18.
We measure the timeliness of our auditors' feedback on the final phase of the long-term planning process. After we adopted this measure in 2014/15, the Local Government Act 2002 was amended to include changed requirements for preparing LTPs. The changes shifted the focus on to consultation documents. Our measure will be reviewed to focus on the audit of the consultation documents and preparation of information to support the LTPs in time for the next round of LTP reporting.
Appointing auditors and monitoring audit fees
The Auditor-General appoints auditors from Audit New Zealand and private sector accounting firms to carry out the annual audits of public entities. When appointing these auditors, the Auditor-General follows principles that are designed to ensure that auditors are independent, audits are of a high quality, and audit fees are reasonable. We continually monitor the allocation of audits to Audit New Zealand and private sector accounting firms to ensure that these principles are followed.
Each year, an independent reviewer examines the probity and objectivity of the methods and systems that we use to allocate and/or tender audits, and to monitor the reasonableness of audit fees. This year's independent review confirmed the probity and objectivity of those methods and systems. Appendix 2 contains the review report.
We regularly monitor audit fees to ensure that they are fair to public entities and provide a fair return to auditors for the work required to meet The Auditor-General's Auditing Standards. In 2016/17, fees were increased for various reasons. These were:
- changes in the scale of operations of some entities;
- the variable quality of the financial statements and performance information prepared by some entities;
- small changes in auditor charge-out rates (the average hourly cost of carrying out audits); and
- in the case of local authorities, the changed reporting requirements resulting from changes to the Local Government Act 2002, and financial prudence regulations.
Movements in audit fees from 2014/15 to 2016/17 are summarised in the table below. These are based on the audit fees that had been agreed at the time our analysis was prepared. The table shows how changes in the time spent on audits and the average hourly cost of carrying out audits have affected fees. The minor decrease for schools reflects the small reduction in audit work following the transition to new accounting standards in 2015/16. Additional local government audit fees reflect the effect of changes to the Local Government Act and additional financial prudence disclosures. Following changes also to the Education Act 1989 and the Companies Act 1993, some subsidiary entities are now required to report only as part of their group, rather than separately. This has resulted in some reduction in audit fees for "groups".
The figures in the table exclude additional audit fees negotiated with public entities as a result of unforeseen problems arising after audit fees were agreed. These are usually the exception, and each case is considered on its merits.
| Changes in audit fees, 2014/15 to 2016/17 | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2015/16 to 2016/17 | 2014/15 to 2015/16 | |||||||
| Sector | Increase in total fee | Because of changes in time | Because of changes in charge-out rate | Number of entities* | Increase in total fee | Because of changes in time | Because of changes in charge-out rate | Number of entities |
| % | % | % | % | % | % | |||
| Central government | 1.5 | 0.4 | 1.1 | 364 | 3.6 | 3.3 | 0.3 | 358 |
| Local government | 5.1 | 6.5 | (1.4) | 387 | 2.0 | (0.1) | 2.1 | 443 |
| Schools | (0.4) | (1.6) | 1.2 | 2413 | 11.0 | 11.2 | (0.2) | 2401 |
| Total | 2.3 | 1.9 | 0.4 | 3164 | 4.3 | 3.5 | 0.8 | 3202 |
* The number of entities are all those entities where audit fees were agreed at the time the analysis was prepared. This number differs from the total number of public sector entities referred to on page 8.
Maintaining auditors' independence
Maintaining our independence is fundamental to our work. The Auditor-General's staff (including Audit New Zealand) and appointed auditors and their staff from private sector accounting firms must meet the high standards of independence required under The Auditor-General's Auditing Standards. The Office has processes to monitor compliance with the Auditor-General's independence requirements. We discuss our independence standards and processes more on pages 8-10.
Publishing The Auditor-General's Auditing Standards
The Public Audit Act 2001 requires the Auditor-General to publish their auditing standards in a report to the House of Representatives at least once every three years. The Act also requires that each annual report include a description of any significant changes to those standards. The Auditor-General's Auditing Standards 2017 were published in March 2017 and are available on our website. No changes have been made to the standards since they were published in March 2017.
Carrying out quality assurance reviews
We carry out quality assurance reviews of all appointed auditors to ensure that they have complied with The Auditor-General's Auditing Standards. During a three-year period, we review the quality of the work of all our appointed auditors. As a result, every appointed auditor is reviewed at least once every three years. We expect all our auditors to achieve at least a "satisfactory" grade. This year, 97% of our auditors met this target. The 3% who did not achieve a "satisfactory" grade were auditors of schools from small audit firms. A follow-up review of auditors who do not achieve a "satisfactory" grade is carried out in the year after their review, and where necessary, changes to auditors' portfolios are made.
Public entities' satisfaction with our auditing services
Each year, we survey public entities to assess their satisfaction with the services our auditors provide. We expect at least 85% of the entities we survey to be satisfied with their audit and the expertise of our auditors.
This year, we did not achieve our target. Only 76% of those surveyed confirmed that they were satisfied with the services our auditors provide compared with 84% in 2015/16. We expected some lowering of the satisfaction rating because we changed our survey method this year from telephone to online. We intend to follow up with those entities that indicated they were not satisfied with their audit service to ensure that we understand where we need to make improvements to our auditing services.
| Financial performance for Audit and Assurance Services RDA | |||||
|---|---|---|---|---|---|
| Actual 2016/17 $000 | Actual 2015/16 $000 | Main Estimates 2016/17 $000* | Supplementary Estimates 2016/17 $000* | Main Estimates 2017/18 $000* | |
| Income from third parties | 76,433 | 78,335 | 75,295 | 75,774 | 83,162 |
| Expenditure | (76,433) | (77,436) | (75,295) | (75,774) | (83,162) |
| Surplus** | - | 899 | - | - | - |
* All Estimates information is unaudited.
** Note 15 in the notes to the financial statements provides more information about transfer of surpluses and deficits to and from the Office's memorandum account.
Audit and Assurance Services RDA revenue was $0.7 million higher than the supplementary estimates, due to higher estimated value of work to date on audits that were under way at 30 June 2017.
Costs recognised against the revenue-dependent appropriation are capped at the total revenue for the year. The remainder of the costs relating to these outputs are funded from prior year surpluses that were held in a memorandum account. These costs are reported in the Audit and Assurance Services appropriation, below.
Appropriation: Audit and Assurance Services
Scope of appropriation and what is intended to be achieved
This appropriation is limited to the performance of audit and related assurance services as required or authorised by statute. It is intended to provide for audit and related assurance services of smaller entities, such as cemetery trusts and reserve boards funded by the Crown. This appropriation also provides for when costs exceed revenue under the Audit and Assurance Services RDA. These deficits are funded by prior year surpluses from this output class, which are held in the Office's memorandum account.
Our performance
We have no specific performance measures relating to this appropriation. However, performance for this appropriation can be inferred through the performance measures for Audit and Assurance Services RDA.
| Financial performance for Audit and Assurance Services | |||||
|---|---|---|---|---|---|
| Actual 2016/17 | Actual 2015/16 | Main Estimates 2016/17 | Supplementary Estimates 2016/17 | Main Estimates 2017/18 | |
| $000 | $000 | $000* | $000* | $000* | |
| Income | 150 | 150 | 150 | 150 | 150 |
| Expenditure | (2,482) | (150) | (1,800) | (3,192) | (150) |
| (Deficit)** | (2,332) | - | (1,650) | (3,042) | - |
* All Estimates information is unaudited.
** Note 15 in the notes to the financial statements provides more information about transfer of surpluses and deficits to and from the Office's memorandum account.
The deficit in this output class represents the use of prior year surpluses from the Audit and Assurance RDA. These costs are funded from the Office's memorandum account, enabling management of audit costs and revenue over multiple years.
The expenditure budget for this output class was increased between the main and supplementary estimates, as a result of changes in forecast of costs to deliver audit work. Actual expenditure was lower than the supplementary estimates appropriation by $0.7 million, because the supplementary estimates includes a buffer of $0.5 million for using additional funds from the memorandum account should this be necessary due to fluctuations in revenue or expense.
Appropriation: Statutory Auditor Function MCA
Purpose of the appropriation
The overarching purpose of this appropriation is to support Parliament in ensuring accountability for the use of public resources.
Scope of the appropriation and what is intended to be achieved
Performance Audits and Inquiries
This category is limited to undertaking and reporting on performance audits and inquiries relating to public entities under the Public Audit Act 2001 and responding to requests for approvals in relation to pecuniary interest questions regulated by the Local Authorities (Members' Interests) Act 1968.
This category is intended to provide Parliament with assurance about how well public entities use resources and manage a range of matters and programmes. We make recommendations where we consider that improvements can be made.
Supporting Accountability to Parliament
This category is limited to reporting to Parliament and others as appropriate on matters arising from audits and inquiries, reporting to and advising select committees, and advising other agencies in New Zealand and abroad to support Parliament and governing bodies in holding their executives to account for the use of public resources.
This category is intended to provide advice and assistance to Parliament and our other stakeholders to assist them in their work to improve the performance and accountability of public entities. Our Controller function provides independent assurance to Parliament that public money has been spent appropriately and lawfully.
Assessment of our performance, standards, and results
| 2016/17 results and previous performance for Statutory Auditor Function MCA | |||
|---|---|---|---|
| Statutory Auditor Function | |||
| Measure | Performance standard | 2016/17 result | 2015/16 result |
| Quality standards are consistently met: stakeholders surveyed who confirm the relevance of our work to users, and reports independently reviewed that are assessed of high quality. | At least 85% for stakeholders and 100% for reports | Achieved 92% for stakeholders when last assessed* 100% for reports |
Achieved 92% for stakeholders 100% for reports |
| Process standards are consistently met: external review and internal quality assurance review confirm our performance audit process standards are consistently complied with and our policies and procedures for statutory auditor functions meet relevant standards. | Confirmation by external and internal review | Achieved Confirmed by external review Confirmed by internal review** |
Achieved Confirmed by external review Confirmed by internal review |
| Performance Audits and Inquiries | |||
|---|---|---|---|
| Measure | Performance standard | 2016/17 result | 2015/16 result |
| Entities accept the key recommendations made in our reports, and the recommendations influence improvement. | As assessed in follow up reports | Achieved for performance audits Achieved for inquiries |
Achieved for performance audits Achieved for inquiries when last assessed in 2013/14 |
| Findings on inquiries reported to the relevant parties within three months for routine inquiries, six months for significant inquiries, and 12 months for major inquiries. | At least 80% | Not achieved for routine inquiries 76% Not achieved for significant inquiries 50%*** Not achieved for major inquiries 0% |
Achieved for routine inquiries 86% Not achieved for significant inquiries 60% Not achieved for major inquiries 0%**** |
| Local Authorities (Members' Interests) Act 1968 (LAMIA) matters that are completed within 30 working days. | At least 80% | Achieved 88% |
Achieved 85% |
* Our most recent stakeholder survey was carried out in 2016. We have changed the frequency of our stakeholder surveys to every two years. Our next stakeholder survey will be carried out in 2018.
** The internal review found that, overall, our performance audit processes met the required standards. For detailed results, see the report on our website http://www.oag.govt.nz/2016/sai-pmf/detailed-assessment. A follow-up internal review is planned in 2017/18.
*** We worked on two significant inquiries. One was completed within our six-month time frame.
**** One major inquiry (Massey North town centre development) was due to be completed in 2015/16. We did not meet our timeliness target for this inquiry.
| Supporting Accountability to Parliament | |||
|---|---|---|---|
| Measure | Performance standard | 2016/17 result | 2015/16 result |
| Stakeholders we survey who confirm that our advice assists them. | At least 85% | Not achieved when last assessed* 83% |
Not achieved 83% |
| Select committees and other stakeholders are satisfied with the proposed work programme (as indicated by feedback on our draft annual work programme). | Stakeholders are satisfied | Achieved Stakeholders satisfied |
Achieved Stakeholders satisfied |
| Projects in the programme of work under this output class that are delivered within their planned time frames. | At least 75% | Not achieved** 39% |
Not achieved 32% |
| Briefings given to select committees at least two days before an examination, unless otherwise agreed. | 100% | Not achieved*** 98.5% |
Achieved 100% |
| Controller function: monthly statements provided by the Treasury are reviewed for the period September to June inclusive. Advice of issues arising and action to be taken is provided to the Treasury and appointed auditors within five working days of receipt of the statement. | All procedures are followed and agreed time frames met | Achieved All procedures followed and agreed time frames met |
Achieved All procedures followed and agreed time frames met |
* We have changed the frequency of our stakeholder surveys to every two years. Our next stakeholder survey will be carried out in 2018.
** 39% of projects (7 out of 18) were delivered within their planned time frames. We comment on the timeliness of completing the projects in our work programme on page 35.
*** Of the 141 briefings prepared, 2 were late. These briefings were due the day after the Kaikoura earthquake on 14 November 2016 when we were not able to access our Office.
Explanation of our performance
We explain below the 2016/17 results for Statutory Auditor Function MCA.
Statutory Auditor Function
Overall, we are satisfied that in 2016/17 we met our quality and process-related targets for our work to support Parliament in ensuring accountability for the use of public resources. For example, an independent assessment of two of our reports concluded that they were of high quality. 92% of respondents in our most recent stakeholder confirmed the relevance and usefulness of our work. The Australian National Audit Office's review of our compliance with our performance audit standards and methodology found that the two performance audit reports reviewed were supported by sufficient and appropriate audit evidence, and in the most part met the Auditor-General's Auditing Standard 5 and applicable Performance Audit Manual policies.
Performance Audits and Inquiries
Our core business is carrying out annual audits. Alongside annual audits, the Public Audit Act 2001 allows the Auditor-General to carry out performance audits, to inquire into how a public entity uses resources, and to study other matters affecting the public sector.
Each year, we publish reports on the results of our annual audits, performance audits, and major inquiries. Through this reporting to Parliament and other stakeholders, we consider matters in greater depth than is possible within the statutory scope of an annual audit and examine ways that public entities can perform better.
Performance audits
Performance audits are comprehensive examinations of effectiveness and efficiency that the Auditor-General chooses to carry out. We plan our work programme carefully to provide Parliament with assurance about how well public entities manage a range of matters and programmes, making recommendations where we consider that improvements can be made.
We bring together matters arising from our annual audits in our sector reports and carry out other studies that result in a range of published reports and information on topical matters affecting public sector accountability and performance.
In 2016/17, we completed reports on a range of matters. Appendix 3 lists these reports, which are available on our website.
Our reports often highlight complexities to be managed and factors that support good decision-making. Where appropriate, we make recommendations for improvement. Each year, we assess the progress public entities make in implementing the recommendations from some of our previous performance audits and discuss this in articles we publish on our website. The articles we published in 2016/17 showed that, overall, entities were making improvements by acting on our recommendations. Progress was better in some cases than others. There were opportunities for further improvement where progress was slower than expected and where our recommendations were yet to be fully implemented. We will continue to monitor how our recommendations are acted on to achieve the intended improvements.
Our work programme
Our annual audit work gives us direct interaction with, and insight into, how the public sector is operating. We use our unique view of the public sector to inform our work programme. We extract greater value from this information by applying a theme across our work and by signalling future themes. After consulting with Parliament on our proposed programme of work, we publish the work we intend to carry out in our Annual Plan.
Achieving our 2016/17 work programme
The theme for our 2016/17 work programme was Information. The Auditor-General selected this theme because of the increasing importance of information to the effective and efficient delivery of public services now and in the future. Through our work, we examined aspects of how well the public sector is both managing and making use of information. We plan to publish a reflections report on our work under the Information theme in 2017/18.
Our progress with the performance audits and other work in our 2016/17 work programme is outlined in Appendix 4. Progress with the performance audits and other work that was carried forward from 2015/16 is outlined in Appendix 5.
Timeliness of completing the projects in our work programme is improving, but there is still work to do. We aspire to deliver 75% of the projects in our work programme within their planned time frames. We measure timeliness against our planned time frames for significant pieces of work in our work programme.
In 2014/15, 17% (4 out of 23) of our projects were delivered on time. In 2015/16, 32% of projects (8 out of 25) were delivered within their planned time frames. This year, 39% of projects (7 out of 18) were delivered within planned time frames. We will continue to seek further improvements in the timeliness of our project completion.
Consultation on our 2017/18 work programme
We consulted the Speaker and select committees about our proposed 2017/18 work programme. Consultation with Parliament and other stakeholders helps ensure that the Office's work is relevant and useful to Parliament, public entities, and the public. Select committees endorsed our proposed 2017/18 work programme and its theme – Water. The Māori Affairs Committee highlighted the significance of our Water theme to Māori.
Our Water theme reflects Parliament's and New Zealanders' growing interest in water. Water is a critical resource that New Zealanders rely on for their long-term health and economic, environmental, social, and cultural well-being. Our aim is that, through our work, we will help improve public management of water now and in the future through sharing our observations of good practice and innovation, and identifying barriers to these.
Inquiries
In contrast to our planned programme of work, our inquiries work is more reactive to matters of current public concern. In 2016, we established a dedicated inquiries team, which manages all inquiry-related issues and carries out any inquiries that the Office decides to undertake. Inquiries issues can arise from our audit or other work, requests from members of Parliament or a public entity, or concerns raised by the public. The work includes determining whether issues raised with us should be subject to further inquiry, and contributing an inquiry perspective to other areas of the Office's work.
When we decide to inquire into an issue, we currently determine whether that inquiry will be a "routine", "significant", or "major" inquiry. The primary distinction between these three categories is scope.
Our work in 2016/17
In 2016/17, we completed two major inquiries that were started before 2016/17 and before our inquiries team was established. These inquiries were Inquiry into the Saudi Arabia Food Security Partnership and Inquiry into Aspects of Auckland Council's Westgate/Massey North Town Centre Project. Due in part to the nature of the issues presented, we did not meet our timeliness target for major inquiries.
We completed two significant inquiries – Inquiry into awarding a management contract for a hotel in Niue and Inquiry into state schools requesting payments in connection with out-of-zone places. We did not meet our timeliness target for significant inquiries. One of the inquiries was not completed within six months because we needed to prioritise other work.
We worked on 25 routine inquiries relating to issues in the central and local government sectors. This number does not include correspondence that was counted in previous years. Our target for completion of routine inquiries is at least 80% within three months. We narrowly missed our timeliness target for routine inquiries (76%).
In our inquiries work, we provided comments and guidance on a range of matters. These included the importance of transparency, providing timely and accurate information to governors and stakeholders, following good procurement practice, and central and local government's ability to demonstrate that good decisions have been made (for example, through good business cases and considering value for money). The public entities involved in these issues accepted our findings as part of improving their processes and activities. Our reports have been well received by Parliament and the public.
As our inquiries processes are refined, we continue to look for ways to improve the timeliness of our work, while ensuring impact and considering the obligations of fairness and natural justice inherent in our work.
Local Authorities (Members' Interests) Act 1968
The Auditor-General also administers the Local Authorities (Members' Interests) Act 1968 (LAMIA), which regulates pecuniary interest matters in local government. This year, we received 59 enquiries under the Act. We measure our timeliness for LAMIA matters from the point where we have all the information we require to carry out our work. This year, we completed 52 out of 59 enquiries within 30 working days.
Supporting Accountability to Parliament
Our advice and support assists Parliament in its scrutiny of the performance and accountability of the public sector. Effective working relationships with select committees are essential to our ability to support Parliament in its work.
We use information from our annual audits and from our performance audits to advise and inform Parliament and our other stakeholders. We work closely with select committee chairpersons and clerks to ensure that our work meets the needs of committees.
Our reporting and advice to Parliament identifies issues and risks in the public sector. We provide:
- reports and advice to select committees to help their annual reviews of public entities and their examination of the Estimates of Appropriations; and
- reports to Parliament on matters arising from our annual audits, performance audits, and studies.
We also advise Ministers of the results of the annual audits for entities in their portfolio.
In 2016/17, we provided advice in support of 98 annual reviews, 46 Estimates of Appropriation examinations, and eight sector briefings. We also helped the Regulations Review Committee with its consideration of a complaint about the Shipping (Charges) Amendment Regulations 2013 and the Marine Safety Charges Amendment Regulations 2013. We completed a significant piece of work which involved many technically complex matters, assisting the committee with its examination of the complaint, and its report to Parliament.
The quality of our relationships with select committees and the effectiveness of our communication help us to use our information and knowledge to best effect. For example, our joint project with the Office of the Clerk of the House of Representatives to improve Parliamentary scrutiny continues to make a difference to committees' uptake of our reports. Select committees now frequently report to Parliament on the matters we raise. Reports of our work on improving Parliamentary scrutiny in New Zealand were well received by the Australasian Public Accounts Committees and the Canadian Audit and Accountability Foundation.
We also regularly check – formally and informally – that select committees are satisfied with our work and the relationships they have with us. We commission an independent survey of a sample of our key stakeholders, including all select committee chairpersons, about how they perceive the quality and usefulness of our work.
Our most recent survey in 2015/16 indicated that, overall, the Office is highly regarded as an organisation of integrity, professionalism, and expertise and is staffed by a strong team of proactive communicators. All those interviewed agreed that we act with integrity and independently of the Government. The Office was credited with improving public trust in government agencies and driving better performance across the public sector. Of the select committee chairpersons interviewed, 92% agreed that our advice is relevant and useful, and all agreed that our advice assists their committee in its work.
There was a more mixed picture with senior public servants. Eight of the 12 interviewed agreed that our advice assists their organisation.
Our stakeholder survey used to be carried out every year. Based on feedback from some previous interviewees, we have decided to survey our stakeholders every two years. Our next stakeholder survey will be carried out in 2018.
Controller function
The Controller function provides independent assurance to Parliament that expenditure by government departments and Offices of Parliament is lawful, and is within the scope, amount, and period of the appropriation or other authority.
The Office of the Auditor-General and appointed auditors carry out standard procedures for the Controller function in keeping with The Auditor-General's Auditing Standards and a Memorandum of Understanding with the Treasury. We review monthly reports that the Treasury provides. We inform the Treasury of any problems and advise the action to be taken.
Each year, we report to Parliament on any significant matters related to the Controller function. Our report on the results of the 2015/16 central government audits showed that there were 12 instances of unauthorised expenditure, amounting to $72.5 million (2014/15: 19 instances amounting to $55.8 million). This equated to 0.08% of the total funding approved through Budget 2015. Most of the unauthorised expenditure reported in 2015/16 arose from errors in previous years that were discovered in 2015/16. This indicates a significant improvement in departments' budget management in 2015/16.
International contribution
Each year, we invest significant time and resources into the international auditing community. Through our international work, we aim to strengthen public sector accountability and promote good governance throughout the world, particularly in the Pacific region. We share our knowledge and expertise with others. In turn, we develop our own knowledge, enhance our strong international reputation, and maintain the effective working relationships we have with other international auditing organisations.
2016/17 was a big year in terms of our commitment to the International Congress of Supreme Audit Institutions (INCOSAI). New Zealand chaired the Professionalisation theme at the December 2016 INCOSAI in Abu Dhabi. The discussions focused on how the International Organisation of Supreme Audit Institutions (INTOSAI) could become a more influential international organisation acting in the public interest. It was a privilege to work with our international colleagues to advance the professionalisation agenda within the international auditing community.
We support accountability, transparency, and good governance in the Pacific through our commitment to the Pacific Association of Supreme Audit Institutions (PASAI). PASAI is the regional organisation of 28 audit institutions in the Pacific. The Auditor-General is Secretary-General of PASAI and represented PASAI on the governing board of INTOSAI until December 2016. We have mentored and supported the Auditor-General of Samoa to take on the role of representing PASAI on the governing board of INTOSAI.
As part of PASAI's Pacific region support initiatives, we continued the support and development work we started in Samoa and the Cook Islands in 2015/16. We also assisted PASAI to deliver a development programme for young leaders in Pacific SAIs, and a communication workshop for Heads of SAIs. We are working with PASAI to develop a programme to assist PASAI members to implement quality assurance processes across their audits and their operations. Our support to PASAI is funded by a contract that is provided by the Ministry of Foreign Affairs and Trade as part of New Zealand's Official Development Assistance programme.
Hosting international delegations provides opportunities to exchange information and build on our professional networks. This year, we assisted visiting representatives from the New South Wales Audit Office, the Welsh Audit Office, the National Audit Office Republic of China (Taiwan), the People's Liberation Army (People's Republic of China), Centro de Estudios Publicos (Chile), the Samoan Ministry for Public Enterprises, and the Indonesian Financial Services Authority.
Our significant ongoing involvement in other INTOSAI activities continued in 2016/17. We are a member of the INTOSAI Professional Standards Steering Committee, which is charged with overseeing the development of international public sector auditing standards. We have also been a member of the project team revising the INTOSAI code of ethics. We continue our membership of the working group on environmental auditing.
In addition, we are a member of the Forum for INTOSAI Professional Pronouncements. The Forum has a mandate to review all of INTOSAI's professional pronouncements as part of a review by INTOSAI of its standard-setting arrangements.
Our three-year term as expert panel member on the Organisation for Economic Co-operation and Development's Audit Committee finished at the end of 2016.
| Financial performance for Statutory Auditor Function MCA | |||||
|---|---|---|---|---|---|
| Actual 2016/17 | Actual 2015/16 | Main Estimates 2016/17 | Supplementary Estimates 2016/17 | Main Estimates 2017/18 | |
| $000 | $000 | $000* | $000* | $000* | |
| Income | |||||
| Crown | 9,615 | 9,627 | 9,627 | 9,615 | 9,611 |
| Other | 130 | 167 | 230 | 230 | 230 |
| Expenditure | (9,524) | (9,758) | (9,857) | (9,845) | (9,841) |
| Surplus | 221 | 36 | - | - | - |
* All Estimates information is unaudited.
Statutory Auditor Function MCA costs were close to budget because of an ongoing high volume of work during the year.
Appropriation: Remuneration of Auditor-General and Deputy Auditor-General
Scope of appropriation and what is intended to be achieved
This appropriation is limited to remuneration expenses for the Auditor-General and the Deputy Auditor-General as authorised by clause 5 of the Third Schedule of the Public Audit Act 2001.
This permanent appropriation provides for payment to the Auditor-General and Deputy Auditor-General as determined by the Remuneration Authority.
Our performance
The Auditor-General and Deputy Auditor-General lead the performance of the Office. The performance of the Office's activities, including this appropriation, is reflected in the information provided in this report.
| Financial performance for Remuneration of Auditor-General and Deputy Auditor-General PLA | |||||
|---|---|---|---|---|---|
| Actual 2016/17 | Actual 2015/16 | Main Estimates 2016/17 | Supplementary Estimates 2016/17 | Main Estimates 2017/18 | |
| $000 | $000 | $000* | $000* | $000* | |
| Income | 1,052 | 972 | 958 | 1,052 | 1,052 |
| Expenditure | (1,052) | (972) | (958) | (1,052) | (1,052) |
| Surplus | - | - | - | - | - |
* All Estimates information is unaudited.
The former Auditor-General, Martin Matthews, elected not to be paid after stepping aside on 24 May while a review into his suitability to continue in the role was carried out. Following Martin's resignation on 2 August, the Speaker determined that he should be paid for the period from 25 May to 2 August. The actual 2016/17 results include the amount relating to the period from 25 May to 30 June.
Appropriation: Controller and Auditor-General – Capital Expenditure PLA
Scope of appropriation and what is intended to be achieved
This appropriation is limited to the purchase of assets by, and for the use of, the Controller and Auditor-General, as authorised by section 24(1) of the Public Finance Act 1989. It is intended to achieve the renewal and replacement of assets that support the delivery of the Controller and Auditor-General's operations.
Our performance
| Financial performance for Controller and Auditor-General – Capital Expenditure PLA | |||||
|---|---|---|---|---|---|
| Actual 2016/17 | Actual 2015/16 | Main Estimates 2016/17 | Supplementary Estimates 2016/17 | Main Estimates 2017/18 | |
| $000 | $000 | $000* | $000* | $000* | |
| Property, plant, and equipment | 427 | 531 | 375 | 362 | 191 |
| Intangibles | 777 | 179 | 220 | 669 | 670 |
| Other | 227 | 390 | 190 | 357 | 370 |
| Total capital expenditure | 1,431 | 1,100 | 785 | 1,388 | 1,231 |
* All Estimates information is unaudited.
Our capital expenditure programme provides for the purchase of facilities and tools to enable our staff to carry out their work – for example, hardware and software for information systems, vehicles, building fit-out, and furniture and fittings. This year, we met our objectives for maintaining these assets.
Expenditure on software in 2016/17 was higher than the supplementary estimates because of increased investment in development of the Office's document management system. Section 24(1) of the Public Finance Act 1989 allows the purchase or development of assets from working capital and asset disposal proceeds, without any further appropriation.
The increase in budget between the main and supplementary estimates for 2016/17 reflects a combination of changed timing and increased costs of the upgrade to the Office's financial management information system, and investment in analytical tools to support audit work.
Appropriation statements
The following statements report information about the expenses and capital expenditure incurred against each appropriation administered by the Office for the year ended 30 June 2017.
Statement of budgeted and actual expenses and capital expenditure incurred against appropriations
for the year ended 30 June 2017
This statement reports actual expenses incurred against each appropriation administered by the Office.
End-of-year performance information for all appropriations is reported in this annual report.
| Annual and permanent appropriations for Vote Audit | Actual 2016/17 $000 | Actual 2015/16 $000 | Main Estimates 2016/17 $000* | Supplementary Estimates 2016/17 $000* | Main Estimates 2017/18 $000* |
|---|---|---|---|---|---|
| Output expenses | |||||
| Audit and Assurance Services RDA (revenue-dependent appropriation)** | 76,433 | 77,436 | 75,295 | 75,774 | 83,162 |
| Audit and Assurance Services | 2,482 | 150 | 1,800 | 3,192 | 150 |
| Total appropriations for output expenses | 78,915 | 77,583 | 77,095 | 78,966 | 83,312 |
| Other expenses | |||||
| Remuneration of Auditor-General and Deputy Auditor-General PLA (permanent legislative authority)*** | 1,052 | 972 | 958 | 1,052 | 1,052 |
| Multi-category appropriations | |||||
| Statutory Auditor Function MCA | |||||
| Performance Audits and Inquiries | 6,406 | 6,442 | 6,587 | 6,578 | 6,576 |
| Supporting Accountability to Parliament | 3,118 | 3,316 | 3,270 | 3,267 | 3,265 |
| Total Statutory Auditor Function | 9,524 | 9,758 | 9,857 | 9,845 | 9,841 |
| Total appropriations for operating expenditure | 89,491 | 88,316 | 87,910 | 89,863 | 94,205 |
| Capital expenditure | |||||
| Controller and Auditor-General – Capital Expenditure PLA**** | 1,431 | 1,100 | 785 | 1,388 | 1,231 |
| Total annual and permanent appropriations | 90,922 | 89,416 | 88,695 | 91,251 | 95,436 |
* All Estimates information is unaudited.
** The Office is permitted to incur expenditure up to the amount of revenue earned for this appropriation. In 2016/17, revenue under this appropriation was $76.433 million – See page 30, Financial performance for Audit and Assurance Services RDA.
*** Costs incurred pursuant to clause 5 of Schedule 3 of the Public Audit Act 2001.
****Costs incurred pursuant to section 24(1) of the Public Finance Act 1989.
Statement of expenses and capital expenditure incurred without, or in excess of, appropriation or other authority
for the year ended 30 June 2017
The Office did not incur any expenses or capital expenditure without, or in excess of, appropriation or other authority for the year ended 30 June 2017 (2016: Nil).
Statement of capital injections without, or in excess of, appropriation or other authority
for the year ended 30 June 2017
The Office did not receive any capital injections without, or in excess of, appropriation or other authority for the year ended 30 June 2017 (2016: Nil).
2: In accordance with section 19 of the Public Audit Act 2001, we also audit some organisations that are not public entities. See Appendix 1.