Part 3: Monitoring Crown entities in practice
3.1
In this Part, we discuss:
- how monitoring departments support key processes;
- how well monitoring departments are influencing the strategic direction of Crown entities; and
- how well monitoring departments are using their sector-wide knowledge to inform Crown entities.
3.2
We looked at nine Crown entity monitoring arrangements. We spoke with the Crown entity and its monitoring department in each arrangement.
3.3
We expected that monitoring departments would:
- support Crown entity engagement in budget and other financial management and policy processes where appropriate;
- support the appointment process to Crown entity boards;
- participate in setting direction and performance expectations for the Crown entities they monitor; and
- carry out monitoring activity that is appropriate to the circumstances of the Crown entity they monitor.
Summary of findings
3.4
Monitoring departments support most administrative processes between Crown entities and their responsible Minister well. However, some of these processes are still challenging or need improving. For example, although monitoring departments are experienced at identifying skill gaps on boards, they still find it difficult to identify suitable candidates to appoint.
3.5
Although monitoring departments support the process for Ministers signing off accountability documents, they engage with those documents in a limited way. This is a missed opportunity to influence the strategic direction of the Crown entities they monitor. Monitoring departments support the process for issuing letters of expectations by Ministers, but it is not clear how effectively these letters are used to influence Crown entity performance.
3.6
The knowledge that monitoring departments gain through their work should make them well positioned to support Crown entities. However, opportunities are often missed. For example, Crown entities have said they would like more support from monitoring departments to understand what is happening across their sector, but we observed that monitoring departments tend to view the performance of each Crown entity in isolation.
Monitoring departments support some processes well
3.7
There are a range of processes between responsible Ministers and Crown entities that monitoring departments are required to assist with, including preparing accountability documents (the Statement of Intent, Statement of Performance Expectations, and the annual report) and annual letters of expectations. Monitoring departments also support Crown entities with parliamentary processes, such as responding to parliamentary questions and preparing funding bids for the annual Budget process.
3.8
We heard that monitoring departments support these processes for Crown entity monitoring well.
3.9
Crown entities said that the support that monitoring departments provided for Budget bids and parliamentary questions was positive. Crown entities told us that the monitoring departments' expertise, systems, and processes were efficient and easy to engage with.
3.10
For the Budget bid process, one Crown entity told us that, even if the bid was not successful, the engagement it had with their monitoring department was valuable and improved the relationship between them.
Board appointment processes are well supported, but are still challenging
3.11
Monitoring departments are responsible for ensuring that Ministerial appointments to Crown entity governance boards are carried out effectively and efficiently. A responsible Minister we spoke to emphasised the importance of appointing the right people to support effective governance.
3.12
In our 2009 report How government departments monitor Crown entities, we found that some board appointment processes were not carried out effectively because of a lack of planning by the monitoring departments. We recommended that monitoring departments plan carefully before starting the board appointment process and consider the steps and timing required for the appointment.
3.13
For this audit, we did not look the processes of individual monitoring departments in detail. Instead, we sought feedback and looked at documents from a range of monitoring departments and Crown entities on the board appointment process.
3.14
In general, we found that monitoring departments support board appointment processes well. We saw evidence that monitoring departments advise Ministers on the skills and experience of board candidates and how they fit with the requirements of the board. They also receive advice on how to ensure that there is diverse board membership.
3.15
Monitoring departments have good methods of identifying what skills and experience board candidates require. All monitoring departments told us that they seek the views of board chairpersons to help identify skill gaps. We also saw some monitoring departments use skills matrices to identify skill gaps.
3.16
However, monitoring departments also highlighted several challenges with board appointments, including that it is time-consuming, public sector governance capability needs developing, and flexibility for reappointments is limited. The challenge that monitoring departments highlighted most was the difficulty in identifying enough suitable candidates for appointment.
3.17
Monitoring departments have developed tools to help identify suitable candidates. Some monitoring departments also maintain databases of potential board candidates. Although these are useful, we did hear concerns that there was not a wide enough pool of candidates in these databases.
3.18
Several monitoring departments that responded to our survey felt it would be beneficial to have a central source of candidates that was continually refreshed and supported by improved sourcing practices.
3.19
Crown entities also highlighted the importance of input from the board chairperson and chief executive, good communication throughout the process, and support after an appointment is made.
Greater monitoring department involvement in board inductions is needed
3.20
Of the Crown entities we surveyed, 38% said their board members and board chairpersons received an induction from their monitoring departments.
3.21
Some board members who responded to our survey said they would like the monitoring department to have greater involvement in the induction process and more information about the monitoring department's role and expectations. We also heard that board members would find refresher sessions useful. Board inductions happen early in a board member's term and there are limited opportunities to refresh their knowledge over time.
3.22
In our view, monitoring departments should work with Crown entities to ensure that there are adequate board induction processes carried out in a timely manner. These inductions should cover the role of the monitoring department. Monitoring departments and Crown entities should also consider whether regular refresher workshops are required.
Monitoring departments could be influencing strategic direction
3.23
The Crown Entities Act 2004 gives monitoring departments mandate to participate in setting strategic direction and performance expectations on behalf of the responsible Minister.
3.24
One of the main ways monitoring departments can do this is by providing the Crown entity with input into the development of its Statement of Intent and the Statement of Performance Expectations.
3.25
The Statement of Intent outlines the Crown entity's strategic intentions and medium-term activities. Crown entities prepare a Statement of Intent at least once every three years. The Statement of Performance Expectations identifies what Crown entities intend to achieve, how they will measure achievement, and how they will assess performance against strategic intentions in the upcoming financial year.
3.26
Te Kawa Mataaho's It Takes Three sets an expectation that monitoring departments provide comments on these documents and work with Crown entities to ensure that Statements of Intent are fit for purpose and strategic direction is appropriately responsive to government objectives.
Advice and input on draft accountability documents is limited
3.27
In our view, monitoring departments should be assessing and routinely providing feedback on how well draft accountability documents demonstrate clear links between strategic intent, proposed interventions, and investment.
3.28
We saw examples where monitoring departments did this. However, we found that, more generally, monitoring departments' feedback and advice on draft accountability documents was limited. Reviews of Statements of Intent and Statements of Performance Expectations tended to be superficial and lacked discussion about how proposed interventions contribute towards the strategic outcomes of the Crown entity and the sector it is in.
3.29
We regularly heard from both Crown entities and monitoring departments that the measures in a performance framework do not accurately tell a Crown entity's performance story. Although Crown entities and monitoring departments told us they know that specific measures are inadequate, we did not see evidence that monitoring departments regularly provide this feedback to the Crown entity or responsible Minister. We saw examples where Crown entities and monitoring departments appeared indifferent to the continued use of inadequate measures.
3.30
In our view, monitoring departments should more consistently challenge Crown entities to improve performance metrics and provide feedback to ensure that they are adequate and robust. Working together to agree on more comprehensive and appropriate performance metrics will enable a more accurate assessment of performance, including the Crown entity's contribution to strategic outcomes.
| Recommendation 2 |
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| We recommend that monitoring departments and Crown entities ensure that there is meaningful engagement in the development of Crown entities' accountability documents. This should include engagement on the operating context, challenges, goals, expectations, and performance measures. |
Letters of expectations could be better leveraged
3.31
Responsible Ministers set their expectations for Crown entities through an annual letter of expectations. These letters can be used to direct a Crown entity to complete specific pieces of work, meet certain performance targets, and follow government guidance where appropriate. Typically, monitoring departments prepare letters of expectations on behalf of the responsible Minister.
3.32
We heard that monitoring departments generally manage the process efficiently. In the examples we reviewed, monitoring departments helped Crown entities link a responsible Minister's letter of expectations with the performance measures in a Crown entity's Statement of Performance Expectations.
3.33
Ministers we spoke with felt this process could be improved. They recognised the importance of these letters to convey expectations to Crown entities.
3.34
Responsible Ministers also acknowledged that they could use these letters of expectations to better influence priorities and drive performance. We agree. These letters give the responsible Minister, the monitoring department, and the Crown entity important opportunities to have meaningful discussions about the Crown entity's operating context, challenges, goals, and expectations.
3.35
We acknowledge that there are certain areas where a responsible Minister cannot intervene, such as in statutorily independent functions. However, we strongly encourage Ministers, Crown entities, and monitoring departments to consider how they make the most of this opportunity without compromising existing accountabilities and responsibilities.
Important connections are not being made
3.36
A monitoring department can add value by making connections between its knowledge of the Crown entity's sector, the regulatory environment, the department, and the responsible Minister's office. Where appropriate, the monitoring department can share that information with its Crown entity. This can help Crown entities understand what is happening across government that could affect them.
Monitoring departments struggle to take a sector-wide view
3.37
Te Kawa Mataaho's guide It Takes Three sets out an expectation that monitoring departments take a sector-wide view to monitoring. Monitoring departments should consider how Crown entities contribute to the Government's wider policy priorities and co-ordinate work within portfolios as well as connecting to work in other portfolios.
3.38
Monitoring departments are often responsible for more than one Crown entity. The monitoring departments we talked to tended to look at the Crown entities they monitor in isolation from one another. Although many Crown entities are part of the same sector, we did not see monitoring departments bring together an integrated view of how Crown entities are achieving sector performance.
3.39
This view was also reflected in some Performance Improvement Framework reviews we looked at. We saw references in these reviews about the need for monitoring departments to focus on strategic outcomes for the sector and take a more system-based or outcomes-focused approach.
3.40
Crown entities told us that they would like monitoring departments to keep them informed about what is going on across their sector and help them understand how their individual performance contributes to their sector's performance overall. Monitoring departments' communications about issues and risks across the sector was the lowest-rated aspect of communication in our survey of Crown entities. More than 35% of Crown entities said it was "poor" or "very poor".
Monitoring departments can support Crown entities to address regulatory challenges
3.41
Through their work, monitoring departments should have a good understanding of Crown entities' operating context, strategic objectives, and the financial and non-financial performance challenges they face. However, it was unclear to us to what extent monitoring departments use their understanding of Crown entities to proactively identify opportunities to improve performance or help policy teams improve regulatory settings, where appropriate.
3.42
Many of the Crown entities we spoke with commented on how monitoring teams are siloed within departments. We heard that Crown entities struggled to engage with other teams of the monitoring department (such as the policy team), which made it difficult for Crown entities to influence policies that negatively affected their performance.
3.43
In our view, linking functions within monitoring departments is one of the most important opportunities that effective monitoring arrangements can create. Monitoring teams are uniquely placed to understand the challenges a Crown entity faces and should work with other teams in their department to help the Crown entity find and progress solutions to improve performance.
| Recommendation 3 |
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We recommend that monitoring departments and Crown entities share knowledge and seek to understand each other's operating context. This should include monitoring agencies:
|