Part 4: Developing our organisational capability

Everything we do to achieve our impacts and outcomes relies on how we build our relationships and our resourcing. The work of the OAG and Audit New Zealand is underpinned by our values:

• People matter.
• Our independence is critical.
• We act with integrity and courage.
• We're here to make a difference.

The bottom layer of our performance framework identifies what we must manage well to achieve our purpose. By improving how we manage our resources, we aim to be in the best possible position to carry out our core functions to the standard that Parliament and the public expects. We provide more detail below about each of these, including why they are important and what we achieved in 2020/21.

Our independence and reputation

Our independence and strong mandate underpin all our work and activities.

Maintaining our independence is critical. The credibility of our work relies on our being free of influence (real or perceived) so that we can carry out our work and report without constraint. We have high standards of independence, and we closely monitor compliance with those standards.

Our independence and reputation are also critical to maintaining Parliament's and the public's trust and confidence in our work. They enable us to maintain our position as one of the strongest "pillars" in New Zealand's national integrity system.²

During 2020/21, to protect the quality and independence of our audit work, we:

• continued to actively monitor and manage potential conflicts of interest for our staff and the audit service providers appointed to carry out audits on behalf of the Auditor-General; and
• maintained a focus on risks to our independence and reputation in our strategic risk register.

Our people

Our culture and engagement, skills, and capability enable us to deliver high-quality professional work.

A positive culture and strong engagement will help our people to perform at their best. Our reputation relies on our ability to attract and retain capable and highly skilled staff. We have focused on the following areas:

Culture and well-being

The well-being of our people and a strong and supportive Office culture have been central to our people-related initiatives for 2020/21.

We prepared an Office-wide resilience and well-being plan aimed at having resilient people and leaders who are able to look after their own and others' well-being. We also delivered a range of initiatives to our employees to prioritise their well-being and welfare, during lockdowns and in working environments that had changed because of Covid-19.

We also supported employee-led networks, including He Tāngata, a Pasifika Network, and a Rainbow Network.

Working more effectively with Māori is a priority for the Office. We continued work on increasing our capability in te ao Māori in the context of a developing an overall Te Ao Māori strategy. We continued our investment in building capability and competence in engaging with Māori by encouraging and supporting more employees to have a basic knowledge of te reo Māori. During 2020/21, 58 learners attended a range of te reo lessons.

We also delivered a training and coaching programme to Audit Managers, Directors, and Sector Managers working with public organisations where tikanga Māori is fundamental to how they operate. To support this, we provided 67 learners with a one-to-one affirmative action programme, Te Hāpaitanga, and implemented processes to address unconscious bias in the recruitment process.

Capability development

We began implementing our people strategy. As part of our people strategy we began to build a competency framework, which sets out requirements for all roles in the OAG and the Corporate Services Team. We developed a range of training programmes that take account of our role, purpose, and vision and ensure that learning is appropriate for the types of work our people carry out. We have also continued training and developing our auditors, including providing support for them to qualify as chartered accountants and holding training events to further develop their auditing capability.

Leadership

Leadership development continues to be a strong focus for the Office. We embedded our OAG and Corporate Services Team people leaders' forum, and Audit New Zealand people leaders completed a year-long programme focused on developing local leadership cohorts.

Recruitment, retention, and remuneration

We started work on a new remuneration and reward system for staff in the OAG and the Corporate Services Team.

We completed the review of Audit New Zealand's intern and graduate recruitment and onboarding processes and implemented its recommendations. The recommendations aim to ensure that our approach to recruitment is fit for purpose and that the best possible talent is being attracted to, sourced by, and retained by Audit New Zealand.

We also carried out work on a retention strategy for Audit New Zealand, looking at how we continue to make Audit New Zealand the employer of choice for audit employees.

Equal employment opportunities

Under the Public Audit Act 2001, the Auditor-General must develop and publish an equal employment opportunities programme, comply with this programme, and include in the annual report an account of how the programme was met. We consider quality of employment opportunity critical to creating a workplace that enables all of our people to contribute to their full potential.

The principles and practice of equal employment opportunities are embedded in our people policies. We provide equality of opportunity in the workplace (for example, in access to, consideration for, and encouragement in recruitment, selection, promotion, conditions of employment, learning, capability building, and career development) regardless of ethnic or national origin, sexual orientation, marital status, disability, gender, age, family status, political opinion, or religion). We consider diversity an asset to the Office and the work we do.

Information about our staff numbers and diversity is published on our website.

Our knowledge, information, and methods

Our collective knowledge and expertise about the public sector, and the processes we use to do our work.

Parliament agreed to invest in the Office in Budget 2020 ($6.3 million capital and $8.3 million operating over five years) to modernise our infrastructure, enhance our data and information technology capability, and address vulnerabilities through implementation of our Information Systems Strategic Plan.

The Plan is also about ensuring that our systems support improved engagement with Parliament, public organisations, stakeholders, and the public.

We have now completed much of the preliminary work. This included upgrades to our operating systems and security and the foundational work to securely enable cloud services. The build phase for selected core systems will begin in 2021/22. We have also invested in our ability to carry out data analytics, which includes developing a Data and Knowledge Strategy.

We implemented a new client portal that enables secure sharing of audit documents between public organisations and Audit New Zealand. This will make audits more efficient and better support remote working for our auditors, as well as reducing travel. As at 30 June, there were 133 public organisations with 31 March 2021 or 30 June 2021 balance dates who were either actively using or had been trained to use the client portal.

The next significant investments are a new audit contract management system and new audit documentation tool. We have selected a provider to build and pilot features for a new audit contract management and self-service application. The build will start in October 2021 if the pilot is successful. We have begun procurement of a new audit documentation tool for Audit New Zealand.

We also invested in tools and support processes to continue to enable remote working. Although we handled last year's lockdown well, it has taken time to make that a sustainable way of working.

Our relationships

Our mutually productive and respectful relationships with all our stakeholders are important to us.

We have a wide range of stakeholders, and our ability to manage these relationships well is important to our ability to influence and have impact.

Our engagement matters because we need to understand what our stakeholders are concerned about and where risks might arise. These insights help inform our work, allow us to target how we can best assist public organisations with the challenges they face, and shape how we communicate the key messages from our work to influence improvements to public sector practice.

We normally hold regular events for public organisations about governance and accountability, accounting and auditing developments, standards, issues, and opportunities. Because of Covid-19, these events could not be held. Instead, we held some of these online and recorded them, and made sessions publicly available so that governors, managers, finance teams, and other public sector staff could continue to have access to information to help them in their work.

We also:

• strengthened our relationships with public sector and audit profession groups by providing briefings and presentations on good practice, emerging risks, and sector insights;
• increased our focus on liaising with audit and risk committees and chairpersons, including establishing new forums both in person and virtually;
• continued to provide briefings on reports for members of Parliament and briefings for select committees to aid their scrutiny of public sector spending and performance; and
• continued to collaborate with Transparency International New Zealand to host events in Wellington and Auckland focused on strengthening public sector integrity and transparency.

We aim to increase the effectiveness of how we engage with, and provide value for, our stakeholders. To achieve this, we carried out surveys to better understand what Parliamentary select committees and other stakeholders consider we do well and where we need to improve.

We increased the number of staff working on our Pacific capacity-building programme to help strengthen our relationships with Pacific audit offices. This enabled us to increase the amount we spend supporting the work of PASAI and on our twinning partnerships. The goal of this work is to help strengthen accountability, transparency, and good governance in the Pacific.

We also worked on our sector teams' operating model to better target our efforts, improve our impact, and support performance in the public sector.

Our financial and physical resources

Our use of financial and physical resources to support our work.

Funding to support our activities has been constrained for more than a decade. We have kept operating costs low, but this has had a range of effects. We have had to reprioritise funding to absorb salary increases and other inflationary pressures in an environment that was struggling with increasing service demand and complexity to meet the expectations of our audit service providers, public organisations, and other stakeholders.

We are mostly funded through audit fees that are collected directly from public organisations subject to audit. We also receive Crown funding for other aspects of our work, such as advising select committees and reporting to Parliament and the public on audits and inquiries.

In the past three years, we have secured additional Crown funding to help us remain sustainable and improve various Crown-funded services. This funding has enabled us to substantially build our people capability in critical areas, ensuring that we have the skills we need to deliver more, better, and faster, addressing remuneration pressures, and investing more in training and development.

The funding has also allowed us to implement a multi-year programme of work to improve our information technology services and systems. We describe the changes we are proposing to make to our information technology in more detail in the section of this Part titled "Our knowledge, information, and methods".

Although we have recently received more Crown funding, our fees for audit and assurance work that funds 85% of our resources have not kept pace with costs. Because of Covid-19, we intentionally constrained fee increases. In 2019/20, new fee increases were kept as low as possible for most sectors, and local government fees increased by only 1.5%.

As a result of cost pressures and constrained revenue due to Covid-19, we no longer have any reserves in our audit and assurance memorandum account and we are projecting deficits in coming years. To address the shortfall, we have lifted fee rates this year by 8% for some sectors and will need to continue to substantially increase fees into the future.

We are also considering other mitigation options and will report on these to the Officers of Parliament Committee in 2021/22.

Our use of natural resources

Our use of natural resources and managing the environmental impact of our activities.

New Zealanders expect public organisations to use all their resources wisely – including the natural resources they consume – and to work to minimise their impact on the environment as much as possible. We have been assessing the environmental impact of our activities for the past few years, looking for opportunities to reduce or mitigate that impact.

We:

• have implemented the main waste management improvements in our Wellington office that an audit by the Sustainability Trust recommended;
• presented features for staff about waste minimisation initiatives on our intranet;
• have continued work on developing an environmental impact reporting dashboard, using the data we have gathered from suppliers;
• have committed to reporting on our greenhouse gas emissions from 2022/23, as a voluntary contribution to the Government's Carbon Neutral Government Programme; and
• will continue to look for other opportunities to reduce our environmental impact (for example, through conducting more of our training events for our staff online and using technology to reduce our need to travel to carry out audits).

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2: According to Transparency International New Zealand, the New Zealand arm of the global anti-corruption agency.