Health sector: Results of the 2016/17 audits.

The performance of organisations providing health services, including the district health boards (DHBs), is important for New Zealand's economic and social well-being. In 2016/17, $16.22 billion was spent on health, making it the second largest area of government spending after social security and welfare.

However, financial sustainability continues to be a challenge for DHBs. The total deficit for all 20 DHBs increased significantly in 2016/17 and is expected to have increased further in 2017/18. Continued financial pressure makes it difficult for DHBs to invest for the future. It also affects their resilience and their ability to make investments to deal with significant changes in demand.

DHB-managed assets – generally hospitals and clinical equipment – are essential for providing health services. DHB-managed assets that are not adequately and regularly maintained can have significant consequences for New Zealanders.

During our 2016/17 audits of DHBs, we did not see much progress in addressing the recommendations from our 2016 report, District health boards' response to asset management requirements since 2009. Recent reports about the condition of some Middlemore Hospital buildings are a timely reminder of how vulnerable DHB-managed assets can be when maintenance is deferred. In our view, asset management remains a significant risk to future service delivery for the entire health sector. We will continue to focus on asset management in our annual audit work. We are also planning to start a programme of work in 2018/19 that looks at significant new investments in the health sector, starting with major hospital building projects.

In our audits of DHBs, we look at their control environments, particularly their financial and service performance systems and practice. DHBs generally have largely effective systems and controls in place, and these systems and controls are improving. Many DHBs have also improved their performance reporting in recent years, which is important for transparency and accountability. However, further improvements to performance reporting would help demonstrate the difference DHBs are making to the well-being of New Zealanders.

DHBs procure a lot of services from third parties. To get the best value for money and quality of service, DHBs need to manage the procurement process well. Although DHBs have procurement policies and practices in place, particularly for day-to-day transactions, they need to focus more on managing contracts. DHBs often rely on trust rather than actively managing contracts to ensure that third parties deliver services to the required standard.

Careful management of sensitive expenditure, such as travel and expenses, remains crucial to maintaining New Zealanders' trust in the institutions that deliver public services and spend public money. It is particularly important that, as the employer of the chief executive, DHB boards ensure that New Zealanders' expectations of their senior public servants are met. But I encourage all staff, particularly those in senior positions, to take action – such as talking to their auditor or making use of protections provided by the Protected Disclosures Act 2000 – when they have concerns about financial mismanagement or misuse of funds in their organisations.

As well as our core audit work, we monitor changes and developments in the health sector to inform our audits and to help us focus on important issues.

Since 2016/17, pressures on the health sector have increased. These have included the problems with buildings at Middlemore Hospital, delays in the Bowel Screening Programme after issues with the pilot programme, and issues with ophthalmology services at Southern DHB that were recently reported by the Health and Disability Commissioner. The Havelock North Drinking Water Inquiry found major deficiencies in the drinking-water system and criticised how the Ministry of Health exercised its functions.

In a sector as large and complex as health, issues are to be expected. However, when several significant issues happen at once, there could be an impression that the health sector has fundamental weaknesses and is at risk of more significant failures. Our audits, at least at an institutional level, suggest that public entities in the health sector have the internal controls and systems they need to operate effectively and be accountable for their performance.

The critical decisions for the health sector are about what services to provide, how to provide them, and where. The Ministry of Health plays an important role here. The health sector relies on clear and strong leadership to make the right choices for future services and meet the expectations of New Zealanders. After a period of re-structuring, the Ministry of Health continues to change. A new Director-General started in June 2018. He will be able to draw on a recent Performance Improvement Framework review of the Ministry of Health from the State Services Commissioner, which provides an external perspective on where the challenges are and what changes might be needed.

The Government has recently announced a wide-ranging review of the health sector, which is expected to result in a report by January 2020. We will continue to provide assurance on the health sector's financial and performance reporting where we can, alert entities and governors to risks where we see them, and recommend improvements where they are needed.

Signature - GS

Greg Schollum
Deputy Controller and Auditor-General

21 June 2018

Photo acknowledgement: Kiri Shannon