Auditor-General's overview

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

Crown entities carry out a wide range of important public services and functions. These services include education, health care, accident and earthquake insurance, public broadcasting, and construction and maintenance of national infrastructure such as roads. In 2020/21, Crown entities were responsible for 39% of central government expenditure, 46% of central government assets, and 74% of the central government workforce.

Crown entities are set up to operate under varying degrees of government influence. The Crown Entities Act 2004 specifies how much control Ministers have over the Crown entities they are responsible for. In general, Ministers have less day-to-day influence over a Crown entity than they do over a government department. However, Ministers are still accountable to Parliament and the public for the performance of the Crown entities that they are responsible for.

A governance board is usually responsible for the governance and oversight of a Crown entity. Ministers' responsibilities include making or recommending appointments to the Crown entity board and participating in setting and monitoring the Crown entity's strategic direction and targets. Monitoring departments support Ministers to carry out their duties and functions in relation to Crown entities.

The network of roles, responsibilities, and relationships between Ministers, monitoring departments, Crown entity governing boards, and Crown entities is complex. This report refers to this network as the Crown entity monitoring system.

There are inherent tensions in the Crown entity monitoring system. For example:

• Monitoring departments and Crown entities need to work closely to develop monitoring frameworks and common expectations. However, a monitoring department must retain enough independence to take an objective view of Crown entity performance.
• The board has primary oversight and accountability for the Crown entity's performance. However, monitoring departments are expected to form a judgement on the performance of a Crown entity and might need to challenge its board.
• To carry out their role effectively, monitoring departments must provide good information, analysis, and advice to Ministers about the effectiveness, efficiency, and performance of any Crown entities that they monitor. At the same time, monitoring departments must respect the arm's-length relationship between the responsible Minister and the Crown entity, and the monitoring, governance, and oversight responsibilities of the Crown entity's governance board.

These tensions are not always easy to manage.

Monitoring arrangements work best when responsible Ministers, Crown entities, and monitoring departments are clear about their roles and responsibilities. There also needs to be effective communication, engagement, and a shared understanding between all of the parties about what good performance looks like.

I have heard a range of concerns about the quality of monitoring that takes place. In recent years, there have been well-publicised performance issues in some Crown entities. I decided to carry out an audit to assess how effective monitoring arrangements are and identify opportunities to improve the Crown entity monitoring system.

In my view, a strong monitoring system will support improved performance of Crown entities. This will help ensure that the critical services Crown entities provide consistently meet the expectations of Parliament and the public.

What we found

In 2009, we carried out an audit of how government departments monitor Crown entities. From that audit, we made recommendations for monitoring departments to:

• better understand their roles and responsibilities;
• improve the timeliness and content of each Crown entity's performance information;
• better plan for the board appointment process; and
• work to improve the preparation of each Crown entity's Statement of Intent.

Since our 2009 audit, some aspects of monitoring have improved. There is now good guidance available, a strong community of practice, and monitoring agencies serve Ministers and Crown entities well in facilitating key processes.

However, some issues remain. The extent to which monitoring adds significant value to understanding Crown entity performance is still unclear.

Monitoring frameworks still tend to focus on key milestones or the timing of monitoring activity. They often lack information about roles and responsibilities and fail to set clear expectations about how performance issues will be dealt with. In most cases, Crown entities have not been consulted in the development of these monitoring frameworks. As a result, monitoring frameworks are not always appropriate to the scope, scale, or level of risk associated with the Crown entity being monitored.

Monitoring departments effectively support Ministers to carry out some of their responsibilities, and Crown entities view the support they receive for parliamentary processes and budget bids as positive. However, other monitoring practices could be improved. Ministers, Crown entities, and monitoring departments noted that monitoring departments' feedback on accountability documents lacks depth. As a result, opportunities to influence the strategic direction of Crown entities, make connections across the sector, and support Crown entities to identify and resolve problems are being missed.

Monitoring reports to Ministers do not generally include enough information to enable good analysis of performance. In my view, there is not enough information in these reports about the risks that Crown entities face, how they are being addressed, and what they might mean for future performance. Although there are a range of levers that Ministers can use to address poor performance, some monitoring departments we spoke to felt that these levers are insufficient or ineffective.

In my view, there is a risk that monitoring has become a compliance exercise generating little value. This is not what the Crown entity monitoring system was set up to achieve.

My staff did observe a genuine willingness to improve the Crown entity monitoring system and draw more value from the monitoring being carried out. I have recommended that monitoring departments and Crown entities continue to work together to improve their monitoring frameworks. I have also identified minimum standards that, in my view, improved monitoring frameworks should meet.

Te Kawa Mataaho Public Service Commission administers the Crown Entities Act 2004. It is well placed to assume a system leadership role for Crown entity monitoring. I have recommended that Te Kawa Mataaho consider how it can play a stronger role in supporting monitoring departments and Crown entities to create further improvements in the Crown entity monitoring system.

Te Kawa Mataaho told us it has several initiatives under way that will address some of the challenges identified. I am encouraged by this and will maintain an interest in the progress of that work.

Improving the Crown entity monitoring system will be challenging. However, when monitoring is done well, it can help Crown entities deliver better outcomes for New Zealanders. I thank the many people who contributed to this audit and took the time to talk with my staff, including Ministers and staff from Crown entities and monitoring departments.

Nāku noa, nā

John Ryan
Controller and Auditor-General

22 June 2022