Part 3: Reporting against appropriations
In this Part, we report on the services that we were funded to deliver in 2017/18 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 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 2018.
Statement of budgeted and actual expenses and capital expenditure incurred against appropriations
for the year ended 30 June 2018
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 2017/18 $000 |
Actual 2016/17 $000 |
Main Estimates 2017/18 $000* |
Supplementary Estimates 2017/18 $000* |
Main Estimates 2018/19 $000* |
|---|---|---|---|---|---|
| Output expenses | |||||
| Audit and assurance services RDA (revenue-dependent appropriation)** | 83,614 | 76,433 | 83,162 | 83,202 | 80,481 |
| Audit and Assurance Services | 150 | 2,482 | 150 | 150 | 1,650 |
| Total appropriations for output expenses | 83,764 | 78,915 | 83,312 | 83,352 | 82,131 |
| Other expenses | |||||
| Remuneration of Auditor-General and Deputy Auditor-General PLA (permanent legislative authority)*** | 739 | 1,052 | 1,052 | 838 | 1,052 |
| Multi-category appropriations | |||||
| Statutory Auditor Function MCA | |||||
| Performance Audits and Inquiries | 6,080 | 6,406 | 6,576 | 6,576 | 6,576 |
| Supporting Accountability to Parliament | 3,195 | 3,118 | 3,265 | 3,278 | 3,278 |
| Total Statutory Auditor Function | 9,275 | 9,524 | 9,841 | 9,854 | 9,854 |
| Total appropriations for operating expenditure | 93,778 | 89,491 | 94,205 | 94,044 | 93,037 |
| Capital expenditure | |||||
| Controller and Auditor-General Capital Expenditure PLA**** | 968 | 1,431 | 1,231 | 1,163 | 1,266 |
| Total annual and permanent appropriations | 94,746 | 90,922 | 95,436 | 95,207 | 94,303 |
* All Estimates information is unaudited.
** The Office is permitted to incur expenditure up to the amount of revenue earned for this appropriation. In 2017/18, revenue under this appropriation was $83.614 million – See page 20, 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 2018
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 2018 (2017: Nil).
Statement of capital injections without, or in excess of, appropriation or other authority
for the year ended 30 June 2018
The Office did not receive any capital injections without, or in excess of, appropriation or other authority for the year ended 30 June 2018 (2017: Nil).
Appropriation: Audit and Assurance Services RDA
Scope of the 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. The audit services we provide are funded by audit fees charged to public entities.
Assessment of our performance, standards, and results
| 2017/18 results and previous performance for Audit and Assurance Services RDA | |||
|---|---|---|---|
| Measure | Performance standard |
2017/18 result |
2016/17 result |
| Key recommendations our auditors include in management reports are accepted and acted on. | At least 70% | Achieved* 89% |
Achieved 82% |
| Public entities' audited reports are signed within the statutory time frame. | At least 75% | Achieved 83% |
Achieved 80% |
| Audit reports not signed within the statutory time frame are because of inaction on our part. | Less than 30% | Achieved 23% |
Achieved 14% |
| Management reports are issued within six weeks of issuing the audit report. | 100% | Not achieved 95% |
Not achieved 96% |
| Long-term plan (LTP) audit opinions are signed by 30 June** (unless held up by the local authority). | 100% | Not achieved 97% |
Not assessed, as not an LTP year |
| Long-term plan (LTP) management reports are provided to local authorities. | 100% | Achieved 100% |
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*** 77% |
Not achieved 76% |
| Appointed auditors who have a quality assurance grade of at least "satisfactory", based on our most recent quality assurance review. | 100% | Not achieved 95% |
Not achieved 97% |
* For the years ended 30 June 2018 and 30 June 2017, we assessed a sample of 45 entities against this measure.
** 30 June 2018 fell on a weekend. This year, the LTP audit opinion needed to be signed on the next business day, which was 2 July 2018.
*** We provide more explanation about our client survey results on pages 19-20.
As part of the review of our performance measures referred to on page 6, we are reassessing how we measure public entities' implementation of our recommendations. We expect to report on revised measures in our next annual report.
Explanation of our performance
We explain below the 2017/18 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 entities1 that are required, and some who choose, to prepare general purpose financial reports – from large government departments and district health boards to every state school and local authority. In 2017/18, 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 2017/18, 83% of public entities met their reporting obligations on time. This result was well above our 75% target. The 17% that did not meet their reporting obligations on time were mostly subsidiaries of public entities, or small public entities such as schools and cemetery trusts.
We also measure how well we meet statutory deadlines. Of the audit reports that are not signed within the statutory deadline, we aim for 30% or fewer to be due to matters that we are responsible for. This year, we met our target, with 23% of the audit reports not signed within the statutory time frame due to matters that were our responsibility, compared with 14% in 2016/17. Capacity issues for some auditors contributed to the 9% difference between results for this year and for 2016/17. We have decided to move some audits to different auditors to minimise the effect of these issues.
We have a statutory duty to issue audit reports on local authorities' consultation documents and on their long-term plans (LTPs). These are prepared every three years. This year, we issued audit reports on local authorities' consultation documents and on their LTPs for 2018-2028. Two local authorities did not have an audited LTP at 2 July 2018 due to matters for which they were responsible.
As part of the consultation document and LTP process, it is important that we report to local authorities about what they could do to improve. As part of our audits, we reported to the management of all local authorities about improvements.
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 2017/18, fees were increased for the following reasons:
- changes in the scale of operations of some entities;
- variable quality of the financial statements and performance information prepared by some entities; and
- small changes in auditor charge-out rates (the average hourly cost of carrying out audits).
This year, fees for some groups of entities decreased because some of their subsidiaries were no longer required to prepare separate financial statements and have them audited.
Movements in audit fees from 2015/16 to 2017/18 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.
Following changes 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, 2015/16 to 2017/18 | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2016/17 to 2017/18 | 2015/16 to 2016/17 | |||||||
| 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 | 1.0 | 1.1 | (0.1) | 356 | 1.5 | 0.4 | 1.1 | 364 |
| Local government | 2.7 | 0.6 | 2.1 | 401 | 5.1 | 6.5 | (1.4) | 387 |
| Schools | 1.5 | 0.0 | 1.5 | 2404 | (0.4) | (1.6) | 1.2 | 2413 |
| Total | 1.6 | 0.8 | 0.8 | 3161 | 2.3 | 1.9 | 0.4 | 3164 |
* The number of entities are all those entities where audit fees were agreed at the time our analysis was prepared. This number differs from the total number of public sector entities referred to on page 5.
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 recognise our independence and reputation as a critical resource that we must manage well. We provide a description of this resource in Part 4. The description provides more information about our independence standards and processes.
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. There have been no changes to the standards since then.
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, 95% of our auditors met this target. The majority of those who did not achieve a "satisfactory" grade were auditors of schools from small private sector accounting firms. We carry out a follow-up review of auditors who do not achieve a "satisfactory" grade in the year after their review and, where necessary, we make changes to auditors' portfolios.
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. We consider this a challenging target, given the inherent healthy tension in the relationship between the auditor and public entities.
This year, we did not achieve our target. Of the entities we surveyed, 77% confirmed that they were satisfied with the services our auditors provide (76% in 2016/17). We changed our survey method from telephone to online in 2016/17. To improve the usefulness of our survey results, we intend to change our rating from a 10-point scale to a 5-point scale, effective from 2018/19.
We will use our survey results to examine where we can best focus our efforts on improving our auditing services. We will 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 those services.
| Financial performance for Audit and Assurance Services (RDA) | |||||
|---|---|---|---|---|---|
| Actual 2017/18 $000 |
Actual 2016/17 $000 |
Main Estimates 2017/18 $000* |
Supplementary Estimates 2017/18 $000* |
Main Estimates 2018/19 $000* |
|
| Income from third parties | 84,496 | 76,433 | 83,162 | 83,202 | 80,481 |
| Expenditure | (83,614) | (76,433) | (81,060) | (82,418) | (80,481) |
| Surplus** | 882 | - | 2,102 | 784 | - |
* 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 $1.2 million higher than the supplementary estimates, due to higher estimated value of work to date on audits that were under way at 30 June 2018, and additional audit work completed. Costs were $1.2 million higher than the supplementary estimates, mainly due to higher personnel costs.
Estimates expenditure shown in the table above is the forecast costs of the output class, although expenditure appropriations are capped at the revenue total for the year. Surpluses are held in a memorandum account for use in future years where a deficit arises. In years where there is a deficit, the remainder of the costs relating to these outputs are reported in the Audit and Assurance Services appropriation, below.
Appropriation: Audit and Assurance Services
Scope of the 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 public entities, such as cemetery trusts and reserve boards, funded by the Crown rather than by audit fees charged to these entities. 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 2017/18 $000 |
Actual 2016/17 $000 |
Main Estimates 2017/18 $000* |
Supplementary Estimates 2017/18 $000* |
Main Estimates 2018/19 $000* |
|
| Income | 150 | 150 | 150 | 150 | 150 |
| Expenditure | (150) | (2,482) | (150) | (150) | (1,650) |
| (Deficit)** | - | (2,332) | - | - | (1,500) |
* 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 deficits in this output class for 2016/17 and forecast for 2018/19 represent 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 $1.5 million deficit forecast for 2018/19 includes a buffer over and above the $0.828 million forecast deficit shown in the Statement of comprehensive revenue and expense in Part 5.
Appropriation: Statutory Auditor Function MCA
Scope of the appropriation and what is intended to be achieved
The purpose of this appropriation is to support Parliament in ensuring accountability for the use of public resources.
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
| 2017/18 results and previous performance for Statutory Auditor Function MCA | |||
|---|---|---|---|
| Statutory Auditor Function | |||
| Measure | Performance standard | 2017/18 result | 2016/17 result |
| Quality standards are consistently met: stakeholders surveyed who confirm the relevance of our work to users, and reports independently reviewed that are assessed as being of high quality. | At least 85% for stakeholders and 100% for reports | Achieved 91% for stakeholders 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 when last assessed** Confirmed by internal review when last assessed*** |
Achieved Confirmed by external review Confirmed by internal review |
* Our stakeholder surveys are carried out every two years. This result is from our 2016 stakeholder survey.
** External peer review of our performance audit function is carried out by the Australian National Audit Office every two years. The last review was in 2017 and the next review will be in 2019.
*** The last internal review of the Office's performance against international standards was in 2016. The review found that, overall, our policies and procedures met the required standards. The results were published on our website https://www.oag.govt.nz/2016/sai-pmf.
| Performance Audits and Inquiries | |||
|---|---|---|---|
| Measure | Performance standard | 2017/18 result | 2016/17 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 |
| Findings on inquiries are reported to the relevant parties within three months for routine inquiries, within six months for significant inquiries, and within 12 months for major inquiries. | At least 80% | Achieved for routine inquiries 80% No significant inquiries carried out Not achieved for major inquiries 0%** |
Not achieved for routine inquiries 76% Not achieved for significant inquiries 50%* Not achieved for major inquiries 0%*** |
| Local Authorities (Members' Interests) Act 1968 matters that are completed within 30 working days. | At least 80% | Achieved 91% | Achieved 88% |
* We completed work on one major inquiry. It was part of our 2016/17 work programme and was not completed within the 12-month time frame.
** 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 | 2017/18 result | 2016/17 result |
| Stakeholders we survey who confirm that our advice assists them. | At least 85% | Not achieved 77% |
Not achieved when last assessed* 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** 20% |
Not achieved*** 39% |
| Briefings given to select committees at least two days before an examination, unless otherwise agreed. | 100% | Achieved 100% |
Not achieved**** 98.5% |
| 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 |
* Our stakeholder surveys are carried out every two years. This result is from our 2016 stakeholder survey.
** 20% of projects (4 out of 20) were delivered within their planned time frames. We comment on the timeliness of completing the projects in our work programme on page 26.
*** 39% of projects (7 out of 18) were delivered within their planned time frames.
**** Of the 141 briefings prepared, 2 were late. These briefings were due the day after the Kaikōura earthquake on 14 November 2016 when we were not able to access our office premises.
Explanation of our performance
We explain below the 2017/18 results for Statutory Auditor Function MCA.
Statutory Auditor Function
Overall, we are satisfied that in 2017/18 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. The reviewers considered that the reports were well written and the recommendations were likely to lead to improvements. They made useful suggestions about how we could improve our reports and recommendations that we are considering.
91% of respondents in our stakeholder survey confirmed the relevance and usefulness of our work. The Australian National Audit Office's most recent review2 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 by sector, 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 are needed.
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 2017/18, we completed reports on a range of matters. Appendix 3 lists these reports, which are all 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 acting on the recommendations from some of our previous performance audits, and discuss this in articles we publish on our website. We will continue to monitor the implementation of our recommendations.
Our work programme
Our work programme is made up of a diverse range of work. Each year, we use our knowledge of the public sector to help determine a theme that we can apply across much of our work. Water management was our theme in 2017/18. A themed approach helps us to increase the impact from our work, and more effectively use our unique role to influence improvements in public sector performance and accountability.
Alongside our theme-based work, we carry out multi-year programmes of work on significant matters that we consider warrant ongoing scrutiny, or where we are required or invited to carry out ongoing work. We also carry out work on particular significant matters that warrant our attention, work to share good practice, report on the results of our annual audits in different sectors, and influence improvements through thought leadership. Our ongoing programme of thought leadership work is examining whether our public sector accountability system is keeping pace with changes in the public sector environment.
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 2017/18 work programme
Our progress with the performance audits and other work in our 2017/18 work programme is outlined in Appendix 4.
Water management is the focus of ongoing theme-based work from our 2017/18 work programme. Public entities in both central and local government play critical roles as policy makers, regulators, and service providers in relation to water. These functions are often delivered in collaboration with other entities – for example, iwi and community organisations. Our work is examining how effectively public entities manage their water responsibilities. At the start of our programme, we prepared a scene-setting report to provide context for our work and help the public to better understand how the public sector manages water in New Zealand.
Timeliness of completing the projects in our work programme remains a focus. 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.
This year, we did not manage to improve our timeliness compared to the previous two years. We completed a lower percentage of our projects within their planned time frames. 20% of projects (4 out of 20) were delivered within their planned time frames compared to 39% (7 out of 18) in 2016/17 and 32% (8 out of 25) in 2015/16. Another 45% of projects (9 out of 20) were delivered up to 3 months late. When added together, about two-thirds of our projects were delivered either within their planned time frames or within 3 months of their planned time frames. This is comparable to the previous two years.
Our projects are complex and involve managing many dependencies that can affect timeliness. We will continue to look for ways to make the insights from our work available in a timely way, including better management of the dependencies that can affect the timeliness of our project completion.
Consultation on our 2018/19 work programme
Our 2018/19 work programme was confirmed after consultation with members of Parliament and other stakeholders. Consultation with Parliament and other stakeholders helps ensure that our work is relevant and useful to Parliament, public entities, and the public. Select committees endorsed our proposed 2018/19 work programme and the topic of Procurement for our theme-based work starting in 2018/19.
Through our work on procurement, we want to influence those involved in public sector procurement to ensure that they consistently manage it well and in a principled way. In doing so, we want to contribute to maintaining the New Zealand public sector's reputation for honesty and integrity.
Our Procurement theme generated a lot of interest. People from within the public and private sectors also sent us carefully considered feedback. All affirmed our aim to see public sector procurement improve.
Inquiries
In contrast to our planned programme of work, our inquiries work is more reactive to matters of current public concern. Our inquiries team 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 determine whether that inquiry will be a "routine", "significant", or "major" inquiry. The primary distinction between these three categories is the complexity of the issues and the time involved in considering and reporting about those issues.
Our work in 2017/18
In December 2017, we started work on two major inquiries:
- the Waikato District Health Board's procurement of information technology services from a company named HealthTap Inc.; and
- the Westland District Council's procurement of remedial works for the Franz Josef wastewater plant.
Our work on these two inquiries continues.
In response to a request from Parliament, we also carried out work about how effectively the Overseas Investment Office manages information that could be relevant to decision-makers. This work was planned in our 2016/17 work programme.
In 2017/18, we did not carry out any significant inquiries. None of the issues that we decided to inquire into were determined to be in this category.
We completed work on 44 routine inquiries (including protected disclosures and inquiry-related correspondence) relating to issues in the central and local government sectors. We aim to complete 80% of our routine inquiries within three months. We met our timeliness target with 80% of routine inquiries completed within three months. 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.
We continue to look for ways to improve the timeliness of our work, while ensuring positive 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 46 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 42 out of the 46 enquiries within our target of 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 audit work throughout the year 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 select 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 2017/18, we provided advice in support of 97 annual reviews, 57 Estimates of Appropriation examinations, and seven sector briefings.
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 has contributed to improvements in the quality and use by select committees of information gathered about public sector performance. Select committee chairpersons find our reports useful in focusing the committees' lines of inquiry. We worked with the Office of the Clerk and Treasury advisors on an effective introduction of new Members of Parliament to the parliamentary scrutiny processes.
We also regularly check – formally and informally – that select committees are satisfied with our work and the relationships they have with us. Every two years, 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 2018 survey indicated that, overall, the Office provides a highly valued service, holding the public sector to account and providing assurance that public money is spent as Parliament intended. Our stakeholders said that they value their relationships with us and our professional, proactive, and responsive approach. They made useful suggestions for improving how we apply the insights from our work to drive improvements in the public sector.
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. All select committee chairpersons interviewed agreed that our advice is relevant and useful, and assists their committee in its work. We have seen an increase in parliamentary focus on tracking changes in entities' performance over time, and in the quality of public expenditure. We will consider how best to further contribute to improvement in these areas through our advice to select committees and our work in improving parliamentary scrutiny.
Eight of the 12 senior public servants interviewed agreed that our advice assists their organisation. As a result of their feedback, we intend to particularly focus on timeliness of reporting as a way to better contribute to "improvement insights" and implementation of our recommendations.
The local government leaders interviewed confirmed that our work in the local government sector is held in high regard, and is viewed as contributing to lifting performance in the sector.
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 2016/17 central government audits showed that there were eight instances of unauthorised expenditure, amounting to $90 million (2015/16: 12 instances amounting to $73 million). This equated to 0.1% of the total funding approved through Budget 2016.
The majority of the "unauthorised expenditure" related to the restoration costs for State Highway 1 after damage caused by the Kaikōura earthquake. The expenditure incurred was authorised in advance for "capital expenditure." However, a large proportion of the restoration expenditure needed to be categorised as "operating expenditure". As such, significant expenditure had been incurred outside the specific scope of the authority provided.
Some breaches of authority can result from unforeseen circumstances or from subtleties relating to the nature of expenditure and the implications for its accounting treatment. In principle, it is important for the authorising and accountability system to distinguish between operating and capital expenditure. There are some circumstances – for example, construction and software development – where it is more difficult to forecast the extent to which expenditure, once incurred, will fall into either category. The appropriation system provides some flexibility through "multi-category" appropriations to cater for both operating and capital expenditure. We expect these appropriations to be used judiciously and only when it is appropriate to provide the sort of flexibility they afford.
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, particularly in the Pacific region. We share our skills, knowledge, and expertise with others. We take part in international auditing conferences, peer review organisations like ours, and host international visitors. In turn, we acquire development opportunities, enhance our own knowledge, and build on our strong international reputation and the effective working relationships we have with other international auditing organisations.
Our major time and resource commitments are to the International Organisation of Supreme Audit Institutions (INTOSAI) and the Pacific Association of Supreme Audit Institutions (PASAI).
We contribute to the working group on environmental auditing, the IntoSAINT project group tasked with promoting use of INTOSAI's integrity self-assessment tool, and 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 strong international reputation was evident with staff appointments to the International Auditing and Assurance Standards Board as a project advisory panel member and as a Board member of the International Public Sector Accounting Standards Board.
Hosting international delegations provides opportunities to exchange information and build on our professional networks. This year, we assisted visiting representatives from the Legislative Assembly of Tonga, the Seoul Metropolitan Government, the Auditor-General of South Africa, the Head of the Court of Accounts of Brazil, and public sector officials from South East Asia as part of their training with Victoria University's English for Public Sector Officials programme.
Our work in the Pacific
PASAI is one of the seven INTOSAI regional organisations. It supports and represents 28 audit institutions in the Pacific. The Auditor-General is the Secretary-General of PASAI. We support accountability, transparency, and good governance in the Pacific through our commitment to PASAI. Our work with PASAI is funded by a contract with the Ministry of Foreign Affairs and Trade.
Our PASAI work is extensive. We support the PASAI secretariat in its work. We have invested in relationships with the audit offices of Samoa and the Cook Islands to support their capacity and capability development. This year, we provided training to assist the Cook Islands Audit Office (CIAO) to improve the quality of its evidence recording and report writing across its audit products and corporate documents. We also provided training to further develop the CIAO's performance audit capability.
This year, our work with the Samoa Audit Office focused on identifying future training and support needs as that Office implements its strategic goals, including a new organisational structure and approach to the completion of financial audits. Mentoring senior staff was a significant focus of our work.
We assisted PASAI with the early stages of developing a peer review programme for the Pacific region. Our work to support PASAI's use of the SAI Performance Measurement Framework assessment tool continued. 12 SAIs from the region were supported to start developing strategic plans that included identifying development needs.
| Financial performance for Statutory Auditor Function MCA | |||||
|---|---|---|---|---|---|
| Actual 2017/18 $000 |
Actual 2016/17 $000 |
Main Estimates 2017/18 $000* |
Supplementary Estimates 2017/18 $000* |
Main Estimates 2018/19 $000* |
|
| Income | |||||
| Crown | 9,611 | 9,615 | 9,611 | 9,611 | 9,611 |
| Other | 165 | 130 | 230 | 243 | 243 |
| Expenditure | (9,275) | (9,524) | (9,841) | (9,854) | (9,854) |
| Surplus | 501 | 221 | - | - | |
* All Estimates information is unaudited.
Statutory Auditor Function MCA costs were $0.6 million lower than the supplementary estimates, mainly due to lower performance audit costs arising from staff vacancies throughout the year and lower associated operating costs.
Appropriation: Remuneration of Auditor-General and Deputy Auditor-General PLA
Scope of the 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 2017/18 $000 |
Actual 2016/17 $000 |
Main Estimates 2017/18 $000* |
Supplementary Estimates 2017/18 $000* |
Main Estimates 2018/19 $000* |
|
| Income | 838 | 1,052 | 1,052 | 838 | 1,052 |
| Expenditure | (739) | (1,052) | (1,052) | (838) | (1,052) |
| Surplus | 99 | - | - | - | - |
* All Estimates information is unaudited.
Remuneration of Auditor-General and Deputy Auditor-General PLA costs were $0.1 million lower than the supplementary estimates, due to the Auditor-General position being vacant for longer than anticipated.
Appropriation: Controller and Auditor-General – Capital Expenditure PLA
Scope of the 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 of output class: Controller and Auditor-General – Capital Expenditure PLA | |||||
|---|---|---|---|---|---|
| Actual 2017/18 |
Actual 2016/17 |
Main Estimates 2017/18 |
Supplementary Estimates 2017/18 |
Main Estimates 2018/19 |
|
| $000 | $000 | $000* | $000* | $000* | |
| Property, plant, and equipment | 595 | 427 | 191 | 538 | 550 |
| Intangible assets | 313 | 777 | 670 | 549 | 260 |
| Other | 60 | 227 | 370 | 76 | 456 |
| Total Capital Expenditure | 968 | 1,431 | 1,231 | 1,163 | 1,266 |
* 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 our property, plant, and equipment. Our objectives for intangible assets included completing the upgrade of the Office's document management system. This project has been delayed and is not yet complete. This is reflected in the lower expenditure on intangible assets for 2017/18 compared to the supplementary estimates.
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.
1: In accordance with section 19 of the Public Audit Act 2001, we also audit some organisations that are not public entities. See Appendix 1.
2: The review is carried out every two years. The last review was in 2017 and the next review will be in 2019.