Part 4: Improving how the government reports on its performance

Observations from our central government audits: 2020/21.

In this Part, we set out our observations about performance reporting across central government.

Performance reporting is about showing what has been achieved with public money. Effective performance reporting is essential to building and maintaining trust and confidence in the public sector and, arguably, its ongoing social licence to operate.

The Government spends about $130 billion13 each year. Parliament and the public expect effective performance reporting that provides them with confidence that public money is spent well and that the Government is effectively and efficiently delivering services to achieve better outcomes for New Zealanders.

New Zealand's public accountability system currently rests on a strong financial reporting system, where:

  • there is clear reporting at the beginning of the financial year on how the Government and government agencies intend to spend money, and at the end of the financial year on how the money has been spent;
  • there are reports on the financial performance of each government entity and a consolidated view at an all-of-government-level; and
  • we provide independent assurance about the reporting.

In our view, how the Government reports on and is held to account for its performance should exhibit the same strengths.

As we see with many key government programmes, such as the vaccination programme, the public can care more about how these programmes are performing than it does about how much money has been spent and whether it has been spent appropriately.

But as we commented in last year's report and in our recent report on performance reporting, how the public sector reports on its performance needs to significantly improve, if the Government wants to maintain the confidence of Parliament and the public.14

Too often, the reporting is focused on what is important to government agencies, instead of what the public or Parliament cares about. We continue to see annual reports that focus on describing all of the activities that an organisation has carried out, without enough focus on good quality reporting about its services and how these have made a difference to people's lives.

Our previous audits of major government initiatives, such as the Provincial Growth Fund, have noted that reporting, while compliant with statutory requirements, is also often fragmented. The reporting on major government priorities and initiatives is spread between the reporting by different organisations and it is left to Parliament and the public to piece together what has been achieved. In many cases, this is not possible from the information provided publicly.

These issues frequently make it hard to tell how well individual central government organisations and the public sector as a whole are performing and what value taxpayers are receiving from the spending of public money.

We acknowledge that reporting on performance is more complex and challenging than financial reporting. Care must be taken to improve how the public sector reports on its performance in a way that meets Parliament's and the public's expectation and supports ongoing performance improvement in the public sector.

However, public trust and confidence can be fragile, and there is a risk of losing it at any time. A concerted focus on how the public sector reports on its performance will contribute to improving the transparency of what is being achieved through the provision of public services and, through this, improving trust in government.

As outlined in more detail in our recent paper on performance reporting, there are likely no quick solutions given the many previous attempts to improve performance reporting.15 Changes are likely needed at multiple levels at which the public sector is regulated and reports on its performance to make a substantive difference to how the public sector is held to account for its performance to Parliament and the public.

Reporting at an all-of-government level

In our view, to meet the public's expectations, there should be reporting on performance at an all-of-government level, on major cross-agency activities (such as joint ventures under the Public Service Act 2020), and for major initiatives delivered by single agencies, but this reporting is currently not required.

In our research on public accountability and performance reporting, we noted that the way in which the public sector is held to account and reports on performance often does not answer the questions that the public cares about.

Our research shows that the public wants to know answers to questions such as whether they and their families receive high-quality education and health services, what is being done to keep their communities safe, and what is being done to address climate change and poverty across New Zealand.

In general, the public wants to know what progress the Government is making on its commitments, promises, and objectives to improve the lives and well-being of New Zealanders. People care less about the number of transactions a government department has processed (for example, how many contracts were approved in accordance with approved criteria), and more about impacts and outcomes (for example, whether their communities are safer).

In 2020, the Government amended the Public Finance Act 1989 to introduce an important element into the public accountability system. The Government is now required to set out its well-being objectives to guide the annual Budget.

This amendment to the public accountability system enables the public and Parliament to understand what the Government is setting out to achieve through the Budget at an all-of-government level. Knowing how much public money is spent is important, but it is not sufficient.

At any level of government, effective public accountability systems should enable the public and Parliament to understand what the Government has set out to achieve but – equally importantly – what progress is being made.

If the Government were to report on the core ways in which it is contributing to the key outcomes that matter to the well-being of New Zealanders, this would tell a rich, comprehensive, and cohesive whole-of-government story of what the public receives from government spending and what progress the Government is making on its core objectives.

Although the well-being amendment to the Public Finance Act also introduced a requirement for the Treasury to periodically produce a well-being report, neither the well-being report nor other reports produced by the Treasury (such as He Tirohanga Mokopuna or the investment statements) will report on what progress the Government is making on its well-being objectives.

Although a significant amount of effort goes into producing these reports, they are not independently assured, and it is unclear how they should be used and what role they serve in the overall accountability system.

The reform work that is happening across the public sector provides an opportunity to address this gap and to put in place a more comprehensive, integrated, and cohesive accountability system.

Reporting on major cross-agency and individual agency initiatives

In last year's report, we noted that the reporting on government initiatives involving multiple public organisations, such as the Covid response and recovery fund and the Provincial Growth Fund, is often siloed and focused on the activities and spending of individual organisations, rather than a report on the initiative as a whole.

We recommended that when significant, new initiatives are established, requirements be established to enable cohesive and comprehensive reporting across the initiative about what it is there to do, how the initiative is progressing (including spending), and what outcomes are being achieved.

Building on last year's comments, we examined what reporting requirements are established for initiatives that are approved as part of the Government's annual Budget.

We looked at a sample of initiatives under the budget priorities for mental health and family and sexual violence in Budget 2019, Budget 2020, and Budget 2021.

For many of the initiatives that we examined, we found it difficult to track, from publicly available documents, spending and how performance will be assessed for each of the individual initiatives and across the relevant priority area as a whole.

We found that the funding for each individual initiative and across the relevant priority area is often authorised across several existing, and at times new, appropriations and Votes administered by different departments.

This approach to authorising spending for new major government initiatives and priorities makes it difficult to track how much spending has been used for the specific initiative compared with the business-as-usual operational spending authorised under the appropriation. It also results in fragmented reporting on spending and performance for the initiatives and across the relevant priority area.

In examining the performance information attached to the appropriations, we also found that this information was often not modified to reflect the distinctive features of the initiative. For example, the budget initiatives to expand mental health services did not result in any changes to the performance information for the appropriations. There were no performance measures assessing to what extent the public has greater access to mental health services.

Currently, the statutory requirements for central government organisations simply require them to report on progress against their strategic intentions and their annual service performance expectations (such as end-of-year appropriations for departments and Statement of Performance Expectations for Crown entities). There is no statutory requirement for public organisations to report on the impacts of any major initiatives that are approved through the Budget.

Although some public organisations will report voluntarily on major policy initiatives in their annual report, this reporting is not required nor consistently available.

Although we examined just a sample of major budget initiatives and priorities, it indicates a broader issue in how the reporting requirements for major initiatives are established through each annual Budget. The current statutory reporting requirements and the process through which initiatives are approved and authorised through the Budget often does not enable meaningful reporting to Parliament and the public.

In our view, members of Parliament and the public should be able to track funding for major policy initiatives and priorities as announced by Ministers through to the appropriations that authorise them, the expenditure incurred under the appropriations, and performance information about what has been achieved with that public money.

Given that the Government typically announces between $2-4 billion in new spending each year, which includes spending for new budget initiatives as well as increased spending due to cost pressures, this is an important public accountability issue.

The Treasury is currently working on modernising the public finance system. This work provides an opportunity to put in place reporting requirements that can enable Parliament and the public to track funding for major policy initiatives and what has been achieved.

Reporting at an organisation level

Last year we noted that there are challenges inherent in good performance reporting and identified where substantive improvements are still needed.

Our recent paper on performance reporting describes in detail the issues that we are seeing in how public organisations report on their performance and areas for improvement.

As part of our work to better understand public sector performance, we have started developing a database of the performance measures that are used by public organisations over the past five years (10 years for district health boards) and how successful they have been in achieving their targets.

As noted in our report on performance reporting,16 we found that the performance information and measures presented by public organisations is overly complicated. We found that from 2016 and 2019, 109 annual reports had more than 100 output indicators and 28 annual reports had more than 200 output indicators. One public organisation had 340 output indicators in a single annual report.

We also found that the performance measures were continuously changing. For example, looking at the output indicators in the annual reports of 33 organisations between 2016 and 2019, we found that in 2016, the annual reports had a total of 1849 output indicators. By 2017, 30% of them were new or had changed their description. By 2018, almost 50% of them were new or had changed their description.

Looking ahead, the database can serve as a rich resource to analyse and identify trends in how the public is reporting on its performance and performing across different levels of government, from an individual entity level through to major government initiatives and at an all-of-government level.

During the next year, we intend to explore opportunities to analyse the performance data to see what it might tell us about the performance of government over time.

For example, the database provides an opportunity to examine trends, such as how well central government entities have succeeded in achieving their targets and comparing this against expenditure over time at an individual entity level, across different sectors, and throughout central government. This kind of analysis can serve as an important initial starting point for examining the performance of central government organisations.

13: New Zealand Government (2021), Financial statements of the Government of New Zealand for the year ended 30 June 2021, Wellington, page 29.

14: Office of the Auditor-General (2021), The problems, progress, and potential of performance reporting, Wellington.

15: Office of the Auditor-General (2021), The problems, progress, and potential of performance reporting, Wellington.

16: Office of the Auditor-General (2021), The problems, progress, and potential of performance reporting, Wellington, pages 21-22.