About the Auditor-General’s work
The Auditor-General’s work fulfils two statutory functions:
The Controller function
The Controller function supports the constitutional principle that the Government cannot spend without the consent of Parliament.
Under this function, the Auditor-General provides independent assurance to Parliament that the expenses and capital expenditure of government departments and officers of Parliament are lawful and within the scope, amount, and period of the appropriation or other statutory authority given by Parliament.
The main features of the Controller function are:
- The Treasury must supply monthly statements to the Auditor-General so they can examine whether expenses and capital expenditure have been incurred in keeping with appropriations or other authority.
- Appointed auditors check compliance with appropriations in conjunction with their annual audits of government departments.
- The Auditor-General can direct a Minister to report to the House of Representatives if they have reason to believe that any expenses or capital expenditure that have been incurred are unlawful or have been applied for a purpose that is not within the scope, amount, or period of an appropriation or other statutory authority.
- The Auditor-General can stop payments from a Crown or departmental bank account, to prevent money being paid out of the account that may be applied for a purpose that is unlawful or that is inconsistent with any appropriation or other statutory authority.
The audit function
The audit function involves:
- annual audits;
- performance audits;
- good practice guidance;
- inquiries; and
- other assurance services.
Annual audits
About 88% of the Auditor-General’s work involves carrying out annual audits of the financial and service performance information of public entities.
Each year, the Auditor-General’s appointed auditors and their teams audit each public entity’s accountability statements. Parliament requires different information to be audited depending on the type of public entity.
In carrying out the audit function, the Auditor-General’s staff and appointed auditors apply audit procedures set out in the Auditor-General’s auditing standards. These standards are based on the ethical and professional standards issued by the External Reporting Board, with additional standards that are unique to the public sector audit environment in New Zealand.
During an annual audit, the auditor:
- examines a public entity’s financial statements, service performance information, and other information that must be audited;
- assesses the results of that examination against a recognised framework (usually generally accepted accounting practice); and
- forms and reports an audit opinion.
An annual audit provides a high, but not absolute, level of assurance about whether a public entity’s financial statements comply with generally accepted accounting practice and fairly reflect its financial position and its financial performance for the period audited. The auditor evaluates the overall adequacy of all the accountability information.
An audit of the annual accountability statements of a public entity results in two kinds of report. One is the audit report (including the audit opinion) that is included in the public entity’s published annual report. The other is a report to the public entity’s governing body and/or managers on matters arising from the audit.
The published audit report gives readers assurance about the fairness of the public entity’s annual accountability statements.
For some entities, the Auditor-General also attests to whether a public entity’s service performance report “fairly reflects the entity’s service performance for the year”.
Performance audits
In carrying out performance audits, the Auditor-General gives Parliament independent assurance about the performance and accountability of public entities. Under section 16 of the Public Audit Act 2001, the Auditor-General may at any time examine:
- the extent to which public entities are carrying out their activities effectively and efficiently;
- public entities’ compliance with their statutory obligations;
- any act or omission of public entities, to determine whether waste has resulted, may have resulted, or may result; and/or
- any act or omission showing or appearing to show a lack of probity or financial prudence by public entities or one or more of their members, office holders, and employees.
The aim of a performance audit is to assure Parliament, public entities, and the public that public entities are delivering what they have been asked to. The Auditor-General reports both good and poor performance, and often highlights aspects of performance that apply to the wider public sector.
Benefits for the public entities that are audited include:
- independent assurance of their operations; and
- recommendations to improve their effectiveness and efficiency.
Performance audits usually result in a report that is presented to Parliament. As soon as the report is tabled in the House, a copy is published on the Auditor-General’s website and an email link to the document is sent to website subscribers. Under Standing Orders, a performance audit report will be referred to the FEC. If the FEC refers the report to another select committee, the Auditor-General will offer a briefing on the report to the relevant select committee(s).
Good practice guidance
The Auditor-General also publishes good practice guides to help public entities develop effective systems, policies, and procedures. Current good practice guides have covered a range of topics, including guidance for members of local authorities about the Local Authorities (Members’ Interests) Act 1968, charging fees for public sector goods and services, and procurement.
Inquiries
The Auditor-General may carry out an inquiry into any matter concerning a public entity’s use of its resources. An inquiry may involve looking into financial, accountability, governance, or conduct issues in a public entity. The concerns may have arisen in the course of the Auditor-General's work or have been raised by a member of the public, an MP, a select committee, or by another organisation. The final decision on whether to carry out an inquiry rests with the Auditor-General.
An inquiry might cover questions such as whether the public entity:
- applied its resources effectively and efficiently;
- complied with its legal obligations;
- acted honestly and with integrity in its dealings; and
- managed its finances prudently.
When a matter is referred to the Auditor-General, they and their staff decide whether to carry out an inquiry and determine its scope. The Office may decide not to look into it (for example, because the Auditor-General is not the appropriate authority to do so), or might refer it to the appointed auditor to consider during the next annual audit of the public entity, or consider the matter when planning performance audits.
The Auditor-General decides what information to report, based on its relevance, and taking into account principles of fairness and natural justice.
Powers
The Auditor-General has broad powers when carrying out their work, including:
- requiring a public entity or any person to provide documents, information, or explanations;
- requiring any person to give evidence;
- examining a private bank account in some circumstances; and
- entering a public entity's premises to obtain evidence.
Other assurance services
The Auditor-General provides reports and help to the Department of the Prime Minister and Cabinet, the State Services Commission, and the Treasury on matters of financial management and accountability.
For more information about our work, see oag.govt.nz/our-work.
The Auditor-General’s staff advise and provide assurance to public entities about a range of matters. They also advise public entities on matters of accountability information, in order to improve the quality of the information available to Parliament and the public.
At the request of a public entity, the Auditor-General can provide other auditing or assurance services, such as auditing financial information in a prospectus or providing assurance about buying or contract procedures.
The Auditor-General also helps other stakeholders, such as professional and sector organisations, and overseas audit offices, on matters of auditing, financial management, and accountability. .
How is the Auditor-General funded?
The Auditor-General is funded:
- by the Crown through Vote Audit for outputs provided to Parliament; and
- from audit fees paid by public entities for annual audits, and other assurance work carried out by the Auditor-General's business arm, Audit New Zealand, at the request of public entities. Contracted audit service providers, including Audit New Zealand, invoice public entities and collect fees directly.
Appointing auditors and monitoring audit fees
The Auditor-General appoints auditors to carry out the annual audits of public entities. These auditors are appointed from a group of about 50 audit service providers. The group includes Audit New Zealand and private sector auditing firms, which range from the four major firms to sole practitioners. Most audits are allocated directly to an auditor, but from time to time an audit is subject to a competitive tender, in particular for public entities with a strong commercial focus.
Although Audit New Zealand is organised and operates along the lines of a private sector professional services firm, it is not a profit-making business. It is expected to break even. Its audit fees are used as a benchmark for maintaining reasonable fees among all auditors who do work on the Auditor-General’s behalf.
The Auditor-General monitors audit fees to ensure that fees are based on realistic hours (that is, hours that reflect the nature and extent of work required), an appropriate audit team mix, and charge-out rates that are in line with market rates. The aim is for fees that are fair to the public entities and also provide a fair return to the auditors for the work they are required to do to meet the Auditor-General’s auditing standards.
The allocation of audits and fee-setting and monitoring systems are independently reviewed annually to ensure that they are carried out with due probity and objectivity.
Who works for the Auditor-General?
The Auditor-General has about 365 employees. They are organised into two business units: the Office of the Auditor-General (the OAG) and Audit New Zealand, supported by a shared Corporate Services Team.
The OAG carries out strategic planning, sets policy and standards, appoints auditors and oversees their performance, carries out performance audits, provides reports and advice to Parliament, and carries out inquiries and other special studies.
Audit New Zealand is the larger of the two business units, and has seven offices around the country. It carries out annual audits allocated by the Auditor-General, and provides other assurance services to public entities within the Auditor-General’s mandate.
For more information on the role of the Auditor-General see oag.govt.nz/about-us/about-cag.
Here is a basic structure showing how work is allocated:
Standards for auditing and independence
All appointed auditors are required to meet the Auditor-General’s auditing standards. These standards underpin the quality and consistency of all audits conducted on the Auditor-General’s behalf, including the appropriate identification, scoping, investigation, and reporting of audits, other auditing services, and inquiries.
To effectively and credibly provide assurance to Parliament, the Auditor-General’s appointed auditors and their staff must be (and be seen to be) independent. There are strict constraints on them, covering:
- personal involvement with an audited entity (including family ties);
- financial involvement with the entity (such as investments);
- providing certain other services to the entity (such as carrying out valuations); and
- dependence on fees from the entity.