Part 1: Our operating environment

The Auditor-General is often described as Parliament's "watchdog". As the auditor of every public organisation, we are uniquely placed to understand the challenges, risks, and issues facing the public sector.

Although the public sector, by and large, performs well and is well led, the context in which it operates continues to change. The current Covid-19 pandemic is a clear example of this, and the public sector will be dealing with the effects of the pandemic for many years.

The Covid-19 pandemic is not the only example. Other events in the past few years have underscored the challenges that we face as a nation – from adverse weather events to natural disasters and acts of terrorism.

Globalisation has facilitated a wide range of illicit activities, such as bribery and corruption, tax evasion, money laundering, counterfeiting, piracy, and human trafficking. The failure around the world to effectively curb these phenomena, have led to an erosion of public trust in institutions.¹ In New Zealand, while trust in the public sector is significantly lower among Māori and Pasifika,² in general, overall trust remains relatively high.

Open markets, the flow of goods and people across borders, and rapid technological change all have significant benefits, but also increase risks. Norms are challenged as the population becomes increasingly diverse, as behaviours accepted in other countries and cultures may fall short of other New Zealanders' expectations of integrity.

Rapidly evolving technology is transforming the way we live, work, and connect with each other – and it is changing our expectations about how we want to engage with public services. Automation, the use of algorithms, and artificial intelligence present new challenges for information security, fairness, and natural justice in decisions made by public institutions.

The public sector has to understand and respond to this context, as well as grapple with complex and persistent social issues that continue to affect the well-being of New Zealanders. Our high rates of family and sexual violence, harmful use of alcohol and drugs, as well as high rates of mental illness, suicide, and child poverty all have significant social and economic costs. Māori continue to experience disparities of outcomes relative to other New Zealanders. In the "post-Treaty settlement" environment, the public sector faces widespread challenges in terms of resourcing and delivering on the Crown's obligations and commitments made in Treaty settlement Acts.

An unprecedented amount of public money will be spent in the coming months and years as the Government responds to the challenges of the Covid-19 pandemic. The implications of this will be felt throughout the public sector for some time. Financial sustainability is already an issue in parts of the education and health sector, both of which have been significantly affected.

Councils are under significant pressure to invest more in ageing infrastructure and protect communities from increased adverse weather, natural disasters, and sea level rises while in a constrained revenue environment. Responding to climate change will be one of the biggest challenges our nation has ever faced – which is significant, given the scale of the issues we are already dealing with.

The public sector is grappling with how to respond to these issues and attempting to work across agency boundaries to tackle more of the complex problems. These changes are an opportunity for progress on intractable issues, but increasingly shared and multiple accountabilities will be difficult to manage. How performance is made transparent to Parliament and the public will need careful thought. New arrangements will also create new challenges in how to hold the public sector accountable.

Reforms are under way in many parts of the public sector. These, coupled with the disruption caused by the Covid-19 pandemic, could leave some public organisations struggling to maintain productivity and make progress.

We might be able to help. Our expertise and independence means we are uniquely positioned to support public organisations focus on good financial and performance management, and to help Parliament and the public hold them to account for their use of public money. Our strategy is designed to increase our relevance, our influence, and our impact in supporting a high-performing and accountable public sector.

1: Organisation for Economic Co-operation and Development (2018), OECD strategic approach to combating corruption and promoting integrity, Chapter 1, page 12.

2: A data breakdown for the Kiwis Count survey is available on the website of the State Services Commission, at www.ssc.govt.nz.