Auditor-General's overview

E ngā mana, e ngā reo, e ngā karangarangatanga maha o te motu, tēnā koutou.

It has been an extraordinary year. However, despite the disruption and uncertainty, our system of public sector financial management, including transparent financial reporting by government, has been maintained. This is testimony to the strength of that system, which has been built over many years. It has also highlighted an aspect of the system that I consider can be further strengthened.

Responding to Covid-19

The scale, speed, and effects of the lockdowns and the wider Covid-19 response have defined this year. My Office focused on helping maintain the quality of financial reporting and confirming that appropriate spending authority was in place for Covid-related expenditure.

It is critical, now more than ever, that there is independent assurance over New Zealand's public financial management system. In times of great uncertainty, Parliament and the public need assurance about how public money is being spent.

The effects of Covid-19 will be long lasting, with many effects not yet apparent. Parliament's authorisation of Covid-related expenditure has given the Government scope to spend a significant amount of public money for its Covid-19 response. Given the size and nature of the funding signalled through the Covid-19 Response and Recovery Fund, I expect robust accountability to Parliament and the public about expenditure incurred and the remaining funds available.

The Government's financial statements and reporting to Parliament

I issued an unmodified audit opinion on the Government's financial statements for 2019/20. The preparation and audit of the Government's financial statements faced significant challenges because of the increased uncertainty, complexity, and disruption caused by Covid-19.

Public organisations had to deal with changes to how they operated, to their spending, and, in many cases, to their revenue. I was supportive of the various legislative amendments made to extend the 30 June 2020 statutory reporting time frames by up to two months for most public organisations.

Despite these challenges, the Government's financial statements provide clear and transparent information about the state of the Government's finances at 30 June 2020. The preparation and audit of these statements are important for many reasons, not least of which is maintaining the country's international reputation for world-class public financial management practices.

As a consequence of my decision to prioritise quality reporting and audits over timeliness, I signed the audit report on the Government's financial statements on 5 November 2020. This was a few weeks after the date stipulated in the Public Finance Act 1989.

The Government's financial statements were significantly affected by the response to Covid-19 (see the diagram after my overview). Substantial increases in borrowing during the year resulted in liabilities increasing by $56 billion. The total assets the Government owns increased to $393 billion (2018/19: $365 billion). At 30 June 2020, the Government's net worth is $28 billion less than the previous year. In short, the Government spent substantially more than it received as it managed the response to Covid-19.

In my view, this level of debt, much of which will be paid back by future generations, coupled with increases in forecast expenditure requires the Government to improve its reporting to Parliament and the public about the effectiveness of government programmes and expenditure more generally.

Performance reporting needs to improve

At one level, New Zealand operates a robust and transparent financial reporting and accountability system. The Government's financial statements and financial reporting by individual public organisations provide a clear, comprehensive, and cohesive account of government spending, which is independently audited.

However, it is time for reporting on all-of-government performance to improve. The public expects more than just robust financial reporting by government. There needs to be at least the same focus on reporting to the public on what was achieved for the public money spent.

There are three broad aspects of performance reporting where improvements are, in my opinion, required.

The first aspect, and the most fundamental, is robust reporting on all-of-government performance. As part of the accountability of government to Parliament and the public for the spending of public funds, there should be robust and independently assured reporting on what services have been delivered and what has been achieved. This should enable the public to get a picture of what, overall, they are receiving for the public money being spent. Ultimately, this is what matters.

The second is reporting on initiatives that involve multiple public organisations. The current reporting approach is often siloed and focused on the activities and spending of individual organisations. For example, our audits of Whānau Ora and the Provincial Growth Fund (noting the range of organisations involved) found that public reporting did not provide an adequate overview of spending on the initiatives as a whole and what was achieved with that money.

The third is at an agency level. Too much reporting is "widget" focused. Although, as Auditor-General, I encourage organisations to measure things accurately, it is also important for an organisation to say what it has achieved rather than how busy it has been. For example, a public organisation reporting on the number of contracts it has approved also needs to clearly explain what public benefit will come from these contracts.

Covid-19 has been a catalyst for change in many parts of our society. The Government is also pursuing a change agenda in the public sector more generally. Placing accountability to Parliament and the public, including improved reporting on the performance of government, as a key element of these reforms will be critical for building and maintaining trust and confidence.

Reporting on the Government's Covid-related expenditure

With public trust and confidence a priority in the Covid-19 operating environment, I have reported on the Covid-related financial approvals and spending. Through my regular Controller updates, I intend to continue these updates and to highlight areas where information for Parliament and the public could be improved.

Acknowledgments

Many public servants have done extraordinarily well to help New Zealand avoid the worst consequences of Covid-19. Public organisations have managed significant challenges through difficult times. Among many other more obvious achievements, I particularly acknowledge the extraordinary work of the Treasury and my auditors in the preparation and audit of the Government's financial statements and related entities.

Our high-quality public financial management system performed well under its most significant challenge in modern times. It has, and will continue to, serve the country well as the recovery from Covid-19 continues.

Nāku noa, nā

John Ryan
Controller and Auditor-General

17 December 2020