Part 3: Performance audits and other work we intend to complete in 2019/20

Annual plan 2019/20.

1. Theme-based work


Our 2018 report Introducing our work on procurement described our three-year focus on procurement and summarised what we see as the main issues and opportunities for improving procurement practice in the public sector. The report drew from our audit work across the entire public sector, from our procurement guidance, and from work by others.

Procurement is particularly important in developing effective public services. Through our work, we want to promote good practice procurement of goods and services and a focus on achieving value for money for New Zealanders. This can be challenging as the public sector moves towards contracting for outcomes.

We aim to:

  • improve procurement practice in the public sector, focusing on procurement outcomes;
  • support a principled approach to procurement;
  • strengthen public sector accountability for procurement;
  • influence public organisations to achieve better value for money from procurement; and
  • improve trust and confidence in public sector procurement, including how public sector procurement takes into account the Crown's Treaty obligations.

First year of work on procurement

As our first year of procurement-related work has progressed, we have deliberately increased our engagement with public sector agencies about procurement matters and have shared examples of good practice. We have drawn on our annual audits and procurement-related inquiries work for good practice examples to share. We have:

  • put additional focus in our annual audit work on the administration of grants by the Ministry for Business, Innovation and Employment (MBIE)1;
  • put more focus on the management and monitoring of the Provincial Growth Fund in our annual audit work on MBIE, the Ministry of Transport, and the Ministry for Primary Industries;
  • completed our survey on the public sector's use of panels of suppliers;
  • carried out the field work for our work on MBIE's functional leadership for procurement, and expect to report our findings in the first quarter of 2019/20; and
  • carried out preliminary scoping for our proposed work in 2019/20, including considering the public sector's management of contracts for the delivery of critical or significant services to New Zealanders.

Our procurement work in 2019/20 and 2020/21

Our proposed work for 2019/20 and 2020/21 is described below. We have planned our work based on our knowledge of priorities at this time. We might make changes to the work proposed for 2019/20 and 2020/21 if new information or risks come to light. For example, we will monitor progress with implementation of the firearms buy-back scheme and report our findings in a timely way. Currently, we plan to report on this in 2020/21, with work likely to start in 2019/20.

Procurement work – 2019/20
MBIE procurement functional leadership: Enabling effective and efficient procurement across the State sector In 2015/16, the total value of local and central government procurement was about $42 billion, which represented about 17% of GDP.

The Ministry for Business, Innovation and Employment (MBIE) is a functional leader for government procurement and has a critical role in enabling effective and efficient procurement across the State sector through collaboration. Functional leadership is aimed at maximising the benefits and reducing the overall costs to the Government of common business activities that may not be achieved through an agency-by-agency approach.

We have combined the two performance audits proposed in our Annual Plan 2018/19 on MBIE's functional leadership role. Our audit examines how well MBIE's functional leadership drives efficiencies and improves services and service delivery. Our audit also examines how well MBIE develops procurement workforce expertise and capability in central government.

This audit is under way, and we anticipate that our report will be published near the end of the first quarter of 2019/20.
Effectiveness of panels of suppliers Based on our analysis of the results from our 2018/19 survey2, we plan to identify aspects of the effectiveness of panels of suppliers that warrant further examination. Potential aspects for examination include:
  • Are public entities following good procurement practice in establishing and operating panels of suppliers?
  • Do public entities have the capabilities needed to use panels of suppliers effectively?
  • Is the use of panels of suppliers by public entities realising the expected benefits?
Contracts for significant services In parts of the public sector, there is a dependence on suppliers for the delivery of significant services. Some of these services are critical to the health, well-being, and security of New Zealanders. We intend to review how the public sector manages the risks to contracts for significant services. Our work will highlight good practice and recommend areas where there is room to strengthen the management of such contracts.
Auckland City Rail Link: Project governance City Rail Link Limited is a Crown entity jointly funded and owned by Auckland Council and the Government to deliver the city rail link project. The project consists of a 3.45km twin-tunnel underground rail link up to 42 metres below the city centre, changing the downtown Britomart Transport Centre into a two-way through-station that better connects the Auckland rail network. It also includes two new stations, redevelopment of Mt Eden station, and various other work to maximise the benefits of the project and the efficiency of the rail network.

The project is expected to be completed in 2024 at a cost of about $4.4 billion. The expected benefits from completing the project include reduced travelling time and congestion, improved reliability, and other wider economic benefits.

Problems with procurement often stem from poor governance arrangements. We plan to focus on how well the governance arrangements are supporting the effective and efficient delivery of the city rail link. We are interested in City Rail Link Limited as an example of a collaboration between local and central government to deliver major infrastructure, and any lessons learned for the use of joint local/central government arrangements to deliver significant projects.
Provincial Growth Fund: Management, monitoring, and evaluation of the Fund The Provincial Growth Fund (the Fund) was launched in 2018. It represents a significant investment ($3 billion) of public funding over three years to lift productivity potential in New Zealand's regions. We carried out some preliminary work on this topic during our 2017/18 examination of MBIE's management of the Fund, and we will continue to follow up on the recommendations we made then.

Because of the size, scope, complexity, and ambition of the Fund, we are extending this work to broader and more in-depth annual audit and review work on the management and monitoring of the Fund, including MBIE's reporting on the effectiveness of the Fund. This work will cover the three agencies most involved: MBIE, the Ministry for Primary Industries, and the Ministry of Transport. We aim to provide further recommendations to improve how the Fund operates.

We plan to continue this work during the next 2-3 years, reporting regularly during the annual audit and the parliamentary Estimates and annual review processes. During this time, we will also consider further audit work focused on the effectiveness of the Fund.
Procurement workforce capacity and capability in local government Local authorities have a vital role in providing infrastructure, facilities, and services for their communities. This often means contracting with third parties for a wide variety of goods and services (for example, construction, technology, waste collection, and public transport).

We have been investigating how local authorities manage and support their procurement functions to understand the drivers of good procurement practice. We now plan to look in detail at a few examples of where local authorities have changed their procurement approach to achieve better procurement outcomes. We intend to share our findings to support improved procurement practices and to encourage greater collaboration between local authorities and other public sector agencies.
Partnerships with the private sector to deliver public sector outcomes – how effective are they? A range of collaborative procurement methods are used in New Zealand to deliver key infrastructure and other large-scale projects. One such method has been public private partnerships (PPPs), which have been used in the transport, education, and justice sectors in recent years.

We propose to investigate further how collaborative procurement methods, including PPPs, are being used. We will select some significant procurements to examine how they are being managed and whether they are achieving the expected benefits. We will aim to share lessons that are applicable to high-value, collaborative contracting.
Procurement of assets to support effective health care There are a number of asset-related issues in the health sector, and we will take this opportunity to influence improvements in this important area. District health boards (DHBs) currently own more than $6 billion worth of assets, such as hospitals, clinical equipment, and information technology, which the Ministry of Health estimates have a replacement value of approximately $16 billion. New Zealand's health care system can be effective only with the right assets to support effective healthcare. Some DHB facilities (including hospitals) will be unable to meet future service demand in some areas, and much of the existing building portfolio will need updating or replacing in the near to medium term.

The significant investment required in assets increases risk, which must be managed through effective strategy, planning, governance, procurement, contract management, project management, and relationship management.

We will examine how well the health sector plans for the procurement of essential assets to support effective healthcare, and identify what improvements are needed for procurement to better support effective healthcare.

We recognise recent developments in the health sector, including establishing a (health sector) National Asset Management Plan and an intent to establish the New Zealand Infrastructure Commission (Te Waihanga) and a health infrastructure unit within the Ministry of Health. We will keep in touch with how these developments influence investment and procurement in the health sector, with a view to carrying out some work in 2019/20. With these and other changes pending, we will keep the focus, timing, and scope of our proposed audit work under review.
How well does the NZTA procurement model manage long-term procurement risks to ensure future value and sustainable procurement? Procurement to maintain the state highway network is important to all New Zealanders. The network is over 11,000km long and extends the length and breadth of the country. It plays a strategic role in linking our towns and communities, with about 50% of all road usage through the state highway network. A significant proportion of investment in transport infrastructure is spent on state highway maintenance contracts.

In 2013, the New Zealand Transport Agency (NZTA) introduced the Network Outcomes Contract model. The design principles of the new contract model were for fewer, bigger, and longer maintenance contracts. In 2014, we followed up our 2011 performance audit on maintenance of the state highway network and noted that there was a risk that the new Network Outcomes Contract model could reduce competition in the maintenance and renewals market, and that this could have adverse long-term effects on the procurement environment.

Given the significance of the state highway network, and the risk we identified in our 2014 report, we plan to carry out a performance audit to examine how effectively and efficiently NZTA is maintaining state highways through the use of Network Outcomes Contracts.
KiwiBuild: Implementation The KiwiBuild programme has three core aims:
  • increase home ownership in New Zealand;
  • to increase the supply of affordable homes in parts of New Zealand where there is a shortage; and
  • to use government procurement to foster innovation and reduce the cost of building new homes.
We plan to assess the implementation of KiwiBuild, including the systems and processes for managing KiwiBuild. This work will form the basis for future work.
Defence procurement: Effectiveness of integrated capability delivery Defence spending represents approximately 1% of GDP and includes a $20 billion programme of capital investment to 2030. We propose to undertake a programme of audit work between now and 2023 examining how effectively a defence capability is acquired and brought into service.

This will involve an assessment of the P-8A Poseidon project scope, leading up to and including the Foreign Military Sales process. In subsequent years, we plan to look at the broader capability (including infrastructure) needed to support the introduction into service of the P-8A Poseidon. This will include the necessary estate regeneration to support relocation of 5 Squadron from Whenuapai to Ohakea and also include capability and development requirements (including simulators).

This is a high-value ($2.346 billion initial capital cost), long-term procurement project (that extends out to 2023), with multiple interdependencies and risks. Through our work, we hope to effect positive change and identify good practice that will be shared with other organisations that manage large and complex procurement acquisitions.
Review of Defence Major Projects Report 2018 and Defence Major Projects Report 2019 Since 2010, the Ministry of Defence and the New Zealand Defence Force have produced a major projects report annually, setting out the status of the management of major defence acquisitions. We have reviewed these reports to provide independent assurance on the project information being disclosed. We plan to carry out a review of the information describing the progress of projects in the Defence Major Projects Report 2019. (At the time of printing, we were waiting on Defence before finalising our review for 2018.)
Procurement work – 2020/21
Government Chief Digital Officer (GCDO): Information and Communication Technology (ICT) procurement functional leadership The Government is considering how to give effect to digital transformation, and this could result in changes to the GCDO's digital, data, and technology leadership roles. We have an ongoing interest in ICT procurement and will consider examining ICT procurement when the Government's current review is completed and any changes made to the GCDO's role have been embedded. We are still scoping this work.
Managing contracts to achieve better outcomes Public entities contract with a range of other entities, including non-government organisations (NGOs) to deliver public services. Increasingly, these arrangements with NGOs and other entities are focused on outcomes.

We are considering an audit that examines contracting for outcomes. Our intention is to identify good practice and risks that agencies can learn from. We are particularly interested in contracts for outcomes that support Māori. We are still scoping this work.
Auckland City Rail Link: Procurement model and delivery We propose to examine City Rail Link Limited's use of an alliance model to deliver aspects of the city rail link, including the main stations and tunnels. The balance between risk transfer and the public sector paying a fair price is critical, given the size and nature of this project. We are still scoping this work.
Tāmaki regeneration programme Tāmaki Redevelopment Company Limited Group (TRC) has the lead on the urban regeneration programme in Tāmaki for its shareholders – the Government and Auckland Council. TRC's subsidiary, Tāmaki Regeneration Limited, took on ownership and management of 2800 Housing New Zealand homes, for redevelopment into about 7500 homes. The Group's role and business model is now very complex, with challenging regeneration goals over the next 15-20 years. HLC (2017) Limited, a wholly-owned subsidiary of Housing New Zealand Corporation, is now also involved in the building development aspect of the regeneration project.

We will carry out work to consider whether the intended or desired results of the Tāmaki regeneration programme in terms of housing volumes, quality, and social outcomes are being achieved, and what the lessons are for addressing regeneration in other localities. We are still scoping this work.
Provincial Growth Fund: Benefits realisation The Provincial Growth Fund represents a significant investment of public funding over three years to lift productivity potential in New Zealand's regions. In 2020/21, we will continue the work we began in 2018/19 looking at the systems and processes for managing and monitoring the Fund. We will also consider further audit work focused on the effectiveness of the Fund in delivering expected benefits.
KiwiBuild: Benefits realisation We plan to examine how well the KiwiBuild programme is achieving its aims. We will take into account any change in context, such as the planned reset of KiwiBuild including targets for building new houses and the Government's building programme, when we decide the scope and focus of this work.
Effectiveness of the firearms buy-back scheme We intend to examine the effectiveness of the firearms buy-back scheme. The scheme is subject to recent legislative changes and any associated changes to regulations. We have been monitoring the design of the scheme and plan to begin scoping this work when the parameters of the scheme have been finalised.
Defence procurement Building on our previous defence work, we propose to continue our programme of work examining the procurement of defence capability in the context of Defence's $20 billion programme of capital investment (topic to be determined).

Improving the lives of New Zealanders

Alongside the second year of our work on Procurement, we will start work based on the theme of Improving the lives of New Zealanders.

The ultimate objective of public expenditure is achieving positive change in the lives of New Zealanders. Achieving positive change means better outcomes for New Zealanders, through improvements to our society, the economy, and the environment. We propose to focus on outcomes that are important for New Zealanders' quality of life, their communities, environment, and living standards.

Through our work, we intend to examine how well public entities are achieving outcomes for New Zealanders. For 2019/20, we will focus on two topics as part of our theme-based work on Improving the lives of New Zealanders:

  • performance in achieving reductions in family violence; and
  • progress towards implementation of the sustainable development goals.

We provide more information about our proposed work in the table below.

Work under this theme for 2020/21 and 2021/22 is still being scoped. However, we expect that our work on performance in achieving reductions in family violence will be ongoing. We also intend to look at the effectiveness of Whānau Ora in achieving better outcomes for whānau. Other topics will be confirmed following further planning over the next year. We intend to examine whether key outcomes are achieved for New Zealanders in a way that delivers value for money from the public resources used. The areas we are considering include:

  • reducing disparities in social outcomes between demographic groups;
  • reducing poverty; and
  • improving resilience of infrastructure to natural hazards.
Improving the lives of New Zealanders – 2019/20
Performance in achieving reductions in family violence Family violence affects half a million New Zealanders every year, is a driver of violent crime overall, and is implicated in both youth crime and youth suicide. Rates of violence are highest among some of our most vulnerable communities. Addressing family violence places a heavy burden on multiple government agencies and numerous government-funded service providers. Most of that work is on crisis response, offender management, and mitigating life-long effects of violence.

Responsibility for addressing family violence rests with a number of government agencies. A cross-government joint venture has been set up to develop new ways of working across government and with iwi and communities, to reduce family violence through an integrated response. We acknowledge that the cross-government joint venture has only recently been set up, but we consider that we can add value by reviewing the programme in its early stages.

Our audit will examine how well family violence is being reduced through national and regional initiatives to address it, and what changes could be implemented to improve the effectiveness of work under way. We expect to report at different stages of our work, with the first of these reports to be completed in 2019/20.
Progress towards implementing the United Nations' sustainable development goals In 2015, all United Nations members adopted the 2030 Agenda for Sustainable Development with its 17 sustainable development goals (SDGs). The SDGs are an important indicator of progress that countries have made towards significant improvement to the well-being of their people, covering a number of areas including poverty reduction, education, employment, and the environment. In July 2019, the Government intends to publish its first report on progress towards implementing the 17 SDGs.

We will carry out a performance audit of how effectively agencies have co-ordinated activities so far towards implementing the 17 SDGs by 2030. We expect our findings to promote:
  • improvements in how government agencies are measuring and reporting outcomes;
  • improved collaboration between government agencies in working towards implementing the SDGs; and
  • improved engagement with private sector organisations, academic institutions, NGOs, and communities in working towards implementing the SDGs.
Improving the lives of New Zealanders – 2020/21
Performance in achieving reductions in family violence We expect the second of our reports on performance in achieving reductions in family violence to be completed in 2020/21.
Effectiveness of Whānau Ora in achieving better outcomes for whānau The purpose of Whānau Ora is to achieve improved well-being for whānau using a whānau-centred, aspirational, and self-determining approach. Since 2015, Whānau Ora outcomes have been commissioned through three non-Government agencies (called commissioning agencies). Te Puni Kōkiri has also been working with other government agencies to encourage the adoption of the Whānau Ora approach across the public sector. Our audit will examine how effectively the Whānau Ora approach has been used to help whānau achieve positive changes to their lives. We will also consider how lessons learnt from our 2015 performance audit about Whānau Ora have been addressed.

Concluding work from previous years' theme-based work

In 2019/20, we intend to complete the work under our Water management theme:

  • Clean-up of significant water bodies;
  • Progress on freshwater quality management since 2011; and
  • Reflections report on Water management theme.

2. Issues of ongoing interest

Issues of ongoing interest – 2019/20
Ethics and integrity landscape New Zealand consistently rates highly on the Transparency International Corruption Perceptions Index as being one of the least corrupt countries in the world. Despite that, there is a risk that fraud and corruption in New Zealand might be more pervasive than is generally acknowledged. There have been a number of high-profile cases of wrongdoing in the public sector in recent years, and the Serious Fraud Office estimates that, based on international comparisons, up to 5% of government funding (or approximately $5 billion) could have been used or obtained fraudulently in 2017.

Preventing and detecting fraud and corruption is key to ensuring that Parliament and New Zealanders' trust and confidence in the public sector is maintained. It is the responsibility of public entities, governors, and leaders to promote high ethical standards and integrity across the public sector, and to put systems and policies in place to prevent and detect fraud and unethical behaviours of all kinds. We intend to undertake some work to better understand and describe the public sector landscape, examining what expectations, advice and support is available to public entities to ensure that they put in place an appropriate ethical culture, framework, and controls for preventing and detecting wrongdoing and unethical behaviour.

From our landscape work, we will identify further areas of work to influence improved ethical standards and integrity across the public sector, and will provide increased guidance for public entities in tackling fraud and other unethical behaviour.
Auckland Council review of service performance: Disaster resilience and preparedness We intend to examine how effectively and efficiently Auckland Council is building its resilience and preparedness to respond to disasters, working in partnership with other agencies, local iwi, and communities to reduce disaster risks and prepare for disaster response.
Local government risk management: Stocktake of approach and reporting results We intend to examine the risk-management practices of councils. We will consider the risk-management practices of a sample of councils. We are interested in identifying examples of good practice to share with councils, and identifying what would support councils to improve their management of risk, including how to strengthen the operation of audit and risk committees where required.

The long-term effect we are seeking is improving risk management by councils, acknowledging the different maturity levels appropriate for different councils.
Inland Revenue Department: Benefits from the Business Transformation programme Inland Revenue's Business Transformation programme is significant because of the large amount of public funds being spent and because of the critical role Inland Revenue carries out in collecting Crown revenue. We are interested in knowing whether the public spending on the Business Transformation programme is delivering the intended benefits from Stages 1 and 2. We intend to provide assurance to the public and Parliament about the benefits achieved. We also intend to assess how well placed Inland Revenue is to measure and report on the intended benefits from the future stages of the programme.

We propose to examine how well Inland Revenue has established indicators and systems for assessing and reporting on the benefits derived from the Business Transformation programme to itself, its customers, the Crown, and others.
Commentary on the Treasury's 2020 Statement on New Zealand's Long-term Fiscal Position At least every four years, the Treasury is required to produce a statement on the long-term fiscal position of the Government. The long-term fiscal statement provides long-term financial projections covering a period of at least 40 years. It identifies and analyses a range of options to address the long-term fiscal position but, importantly, does not make recommendations. There have been four long-term fiscal statements produced to date ‒ in 2006, 2009, 2013, and 2016. The Treasury plans to publish the next long-term fiscal statement in March 2020.

As we did in 2013 and 2016, we intend to review the next long-term fiscal statement produced by the Treasury, which we expect will have a greater inter-generational well-being focus than in previous statements. We are interested in understanding and commenting on:
  • the approach that the Treasury takes;
  • the Treasury's long-term fiscal model and how it is used; and
  • the links between the long-term fiscal model and the information presented in the long-term fiscal statement.
Controller updates We will publish six-monthly updates about our Controller work.

Future work on issues of ongoing interest

Topics for our future work are still being considered.

3. Regular reports

Work on sector-based reporting – 2019/20
Sector reports We plan to prepare the following suite of sector reports:
  • Central government: Results of the 2018/19 audits;
  • Summary of results of the 2018/19 central government audits for Chief Executives;
  • Results of the 2018 school audits;
  • Results of the 2018 audits of tertiary education institutions;
  • Results of the 2017/18 district health board audits;
  • Results of the 2018/19 district health board audits; and
  • Local government: Results of the 2018/19 audits.

Future work on regular reports

We will report on the results of the local government and central government audits. We will also report on the results of our annual audit of the Financial Statements of the Government and on the Controller function. Future reports on other sectors are still being considered.

4. Sharing good practice

Work on sharing good practice – 2019/20
Updating good practice guidance Our ongoing programme of updating our existing good practice guidance will continue. We intend to update the following good practice guides:
  • Managing conflicts of interest: Guidance for public entities;
  • Guidance for members of local authorities about the Local Authorities (Members' Interests) Act 1968;
  • Charging fees for public sector goods and services; and
  • Controlling sensitive expenditure: Guidelines for public entities.
Reporting on the progress of public entities in implementing the Auditor-General's recommendations from previous reports We will follow up on whether the recommendations from some of our earlier reports have been implemented and whether improvements have been made in the areas we identified as needing attention. The reports we intend to follow up on are:
  • Using information to improve social housing services; and
  • Accident Compensation Corporation: Using a case management approach to rehabilitation.
We will report on the progress we find and share good practice where we find it.

Future work on sharing good practice

At this stage, our proposed topics are:

  • for 2020/21:
    We intend to update the following good practice guides:
    • Procurement guidance for public entities; and
    • Public sector purchases, grants, and gifts: Managing funding arrangements with external parties,
    and report on the progress of public entities in implementing the Auditor-General's recommendations from previous reports (programme of follow-up work to be determined); and
  • for 2021/22:
    • continue our programme of updating good practice guidance; and
    • report on the progress of public entities in implementing the Auditor-General's recommendations from previous reports (programme of follow-up work to be determined).

5. Influencing improved performance and accountability

Work on influencing improved performance and accountability – 2019/20
Landscape of the public accountability system: First and second reports In 2019/20, we will publish our first and second reports about the future of public accountability.

The first report summarises what existing literature can tell us about public accountability, how it evolves over time, and what this might mean for our system of public accountability and the role of public audit within that system.

The second report will assess the current system of public accountability, discuss how well the system is positioned to meet these challenges, and explore the implications for the role of the Auditor-General. The objective of this work is to influence and support future public sector management reforms to strengthen the public accountability system.
Making performance reporting more effective Drawing on our previous work, and the results from our annual audits, we propose to assess the state of performance reporting across the public sector. We will consider recent work to develop a living standards framework, the accompanying indicators, and how performance reporting could reflect contributions to the well-being of New Zealanders more generally. We will also look at how well public entities provide meaningful information to the public about efficiency, productivity, and value for money of their services.

The objective of this work is to support entities to improve their own performance indicators and reporting practices, and assist them in adapting performance frameworks to take account of the Government's emphasis on well-being.

Future work on influencing improved performance and accountability

Topics for our future work are still being considered.

1: We reported to Parliament on this in our MBIE 2017/18 annual review briefing.

2: We have reported a summary of the survey to participants. We are considering further reporting on the issues raised by the survey.