Part 2: The progress that the Office has made against our current strategy

Auditor-General’s mid-term review.

2.1
This Part discusses:

The Auditor-General's work

2.2
The Auditor-General is an Officer of Parliament. The role is an important part of New Zealand's constitutional framework and a recognised pillar of the national integrity system.4 The Office aims to increase trust and confidence in the public sector and in central and local government.

2.3
When public organisations spend public money,5 New Zealanders expect that spending to be appropriately authorised, effective, and efficient. Parliament and the public are also interested in whether public organisations carry out their activities with integrity.

2.4
As the public sector auditor, the Auditor-General provides independent assurance on these matters through two main functions. These are:

  • the annual programme of mandatory audits of the financial statements and statements of service performance that public organisations publicly report; and
  • a programme of discretionary work, including performance audits, other assurance activities, inquiry work, and advice to Parliamentary select committees.

2.5
These activities underpin the information that the Office provides Parliament and the public to be able to hold public organisations to account for their performance. These, with our research activities, also inform the good practice guidance, seminars, and other material we produce to support public organisations to improve their performance.

2.6
A public sector audit includes additional matters that are not usually covered in a private sector audit. A public sector audit, for example, does not just provide an independent opinion on whether a public organisation has fairly reflected the results of its activities in its financial statements and, as required, its statement of service performance. A public sector audit also considers aspects of whether a public organisation is complying with its statutory obligations and whether it is operating with integrity. This could include highlighting where waste or a lack of probity has occurred.

2.7
To carry out this work, the Auditor-General employs staff in two business units – the Office of the Auditor-General and Audit New Zealand – and contracts with private sector accounting firms (other audit service providers). A shared Corporate Services Group supports the two business units. Together, these four parts of the Office work together to deliver all work carried out on the Auditor-General's behalf.

2.8
The Office of the Auditor-General carries out strategic audit planning, sets policy and standards, appoints auditors and oversees their performance, carries out performance audits, provides reporting and advice to Parliament, carries out inquiries and other special studies, and develops and shares good practice guidance.

2.9
The Office of the Auditor-General also carries out the Controller function. This function provides independent assurance to Parliament and the public on the extent to which the expenses and capital expenditure of government departments and officers of Parliament are lawful and within the scope, amount, and period of the appropriation or other statutory authority given by Parliament.

2.10
The Auditor-General appoints auditors from Audit New Zealand and other audit service providers to carry out the annual programme of nearly 3400 mandatory audits of public organisations on the Auditor-General's behalf.6

2.11
Appendix 4 contains background information about the nature of a public sector audit, the Office's systems and processes for ensuring the independence and quality of our work, and how the Office is held to account.

The Office's strategy

2.12
The Office's current strategy was developed in 2017/18 and is organised around four strategic shifts. These are:

  • Focus more on examining how well the public sector achieves positive change for New Zealanders.
  • Help New Zealanders become better informed about public sector performance and accountability.
  • Be more active in sharing insights about what "good" looks like.
  • Help improve the public sector accountability system.

2.13
The Office's strategy, including the four strategic shifts, was designed to contribute to the ultimate outcome for the Office – that Parliament and the public have trust and confidence in the public sector.

What the Office has achieved since adopting the strategy

At the start of my term

2.14
At the start of my term, the Office had been through a period of significant challenge and change. There had not been an Auditor-General for more than a year.

2.15
Because the Deputy Controller and Auditor-General has the same powers, duties, and functions as the Auditor-General,7 the Office had been able to continue its work during this time. However, uncertainty about the Auditor-General role and the need to focus on maintaining the Office's core work meant that there was limited opportunity to make progress with implementing the strategic shifts.

2.16
In addition, as I noted in a business case supporting a budget bid as part of Budget 2019:

  • demand for the Office's work was increasing;
  • public expectations of accountability were shifting;
  • the public sector was under significant pressure; and
  • Parliament, and public organisations wanted us to do more.

2.17
There had been minimal new Crown funding to support the activities of the Office during the previous decade. This limited the discretionary work that the Office could complete and the ability of the Office to invest in new technology.

2.18
The minimal new funding also meant that there was an increasing risk that the Office's capability and the relevance of our work and reputation would decline, that we would not achieve our strategy, and that our technology would remain vulnerable and dated. Staff were also being paid below comparable market rates.

2.19
In Budgets 2019 to 2021, Parliament progressively invested in the Office to expand the scope, relevance, and timeliness of our discretionary (Crown-funded) work and to modernise the Office's technology and remuneration systems. We have used the funding to progress the Office's strategy and to address our capability and capacity risks in areas that are directly funded by the Crown.

What the Office has achieved with increased funding

We have broadened the focus and approach of our performance audits, inquiries, and other work with a view to increasing our impact

2.20
With the increased Crown funding approved by Parliament, we broadened our work programme to focus more on outcomes and areas of high impact and to complete more self-initiated inquiries. We also enhanced the way we follow up on how public organisations have responded to the recommendations in our performance audits. This allows us to complete more, and more timely, follow ups of our performance audits.

2.21
Those we interviewed as part of this review recognised that the Office has been increasingly focusing on topics and issues that matter to New Zealanders. They also recognised that the timeliness of the work we publish has improved, citing our work on the wage subsidy scheme and the roll-out of the Covid-19 vaccine as examples. There has also been positive feedback on the increasing relevance and impact of our inquiries work.

2.22
I recognise that increasing the volume of our work can create challenges and additional pressure on the public organisations we audit.

2.23
During the last two years, in particular, much of our work has focused on public organisations involved in the response to the Covid-19 pandemic. These public organisations were delivering critical services in a time of crisis, often with other reviews under way.

2.24
In my view, these are the very matters that the Auditor-General should be involved in, and provide insights about, for Parliament and the public. These are matters that affect the everyday lives of New Zealanders.

2.25
Nevertheless, we will need to ensure that we continue to strike an appropriate balance between providing assurance over historical performance and taking the opportunity to influence critical work of the public sector when it is in progress.

We have refreshed and expanded our good practice material

2.26
We have invested in dedicated resources to focus on developing new good practice guidance and refreshed several of our existing good practice guides. These include our guides on severance payments, sensitive expenditure, managing conflicts of interest, and setting fees and charges.

2.27
We have also extended the scope of our good practice materials where the Office has particular expertise. Since 2019, we have published updated or new guidance to support the public sector (Appendix 3 sets out our suite of good practice guidance published since 2019). In 2022, we published an integrity framework for public organisations and held a series of seminars to promote it.

2.28
We have received extensive feedback that public organisations value our good practice materials and the seminars and events we run to promote them. We aim for our good practice material to contribute to positive improvements in public organisations, which in turn should lead to increased trust and confidence in the public sector.

We are using more data and analytics

2.29
We have invested in increased data and analytics capability. We have also developed a data and analytics strategy to better use data to generate insights from our work.

2.30
Although we already collected the selected financial information of many public organisations, we now have a non-financial performance data set for about 400 public organisations. This currently includes more than 110,000 data points for at least five years. We intend to use this data to track organisational performance over time. For example, for the former district health boards we have information for 11 years, which provides a base for comparing future performance in the health sector.

2.31
We are increasingly using this information and our other data assets and analytical capabilities in our work, such as performance audits, sector reports, and select committee briefings. However, we can get more benefit and insight from this and other data. We also need to consider how to more effectively use data and analytics in our mandatory audit work. This remains an important focus and will require ongoing investment.

Increased reporting from the Controller function

2.32
In recent years, we have invested in a dedicated role and resources to lead our Controller function work. This has resulted in an increase in public reporting on Controller matters. We now regularly report on whether government expenditure has been appropriately authorised, including spending on the Government's response to the Covid-19 pandemic. We have also reported on several high-profile matters where questions had been raised about the lawfulness of government expenditure, for example:

  • the purchase of land at Te Puke Tāpapatanga a Hape (commonly referred to as Ihumātao); and
  • the Cost of Living payments.

We are better targeting our engagement with Parliament and public organisations

2.33
In my role as Auditor-General, I generally have the power to only report findings and make recommendations. Apart from some specific circumstances, I do not have the power to change what a public organisation is doing.8 For example, I cannot intervene in decisions that public organisations make, nor can I direct a public organisation to act on my findings or recommendations.

2.34
This means that it is important to maintain the reputation and authority of the Auditor-General's role so that the Office can continue to influence the public sector to improve its effectiveness, efficiency, and integrity.

2.35
To encourage public organisations to act on our recommendations, we build and maintain strong relationships with those who can influence change, particularly those who govern and lead public organisations. These include chief executives, chairpersons, Mayors in local government, and Audit and Risk Committee chairpersons.

2.36
We also invest in, and manage relationships with, central government agencies and regulators because they often identify similar risks and seek similar improvements throughout the public sector. In many cases, they can also more directly influence change.

2.37
We have increasingly targeted our engagement activities at the highest-priority organisations and issues. We hold virtual Audit and Risk Committee Chairs' forums on a range of topical matters, share what "good" looks like in seminars for public servants, and present our work to newly elected councillors of local authorities, with a particular focus on conflicts of interest.

2.38
Key to the success of the Auditor-General's role is assisting Parliament in its scrutiny of public organisations' performance. We mainly provide this through:

  • advice to select committees to assist their annual reviews of selected public organisations and assisting their examination of the Estimates of Appropriations (for example, we provided 181 briefings to select committees in 2021/22); and
  • reports to responsible Ministers on the results of our annual audits (for example, we provided 169 letters to Ministers in 2021/22).

2.39
Our most recent survey of select committee chairpersons showed that they consider our briefings to be high quality and provide valuable lines of questioning for committees to use if they wish. Select committee chairpersons consider the Office to be a patient and approachable advisor, independent of the political system. This is very positive feedback for the work we do in supporting Parliament.

2.40
However, we know that select committee chairpersons, public servants, and others with an interest in our work often cannot read all of our briefings and reports because of time constraints. Although the Office's reports are an important record of our work, including our findings and recommendations, we continue to look for more accessible ways to share our messages with particular audiences.

2.41
In our work, we have highlighted important messages that public organisations have not always addressed in a timely manner. For example, we raised, over many years, the issue that councils were not investing enough in maintaining and renewing their infrastructure assets (for example, pipes). Although many councils are now starting to address this (as we saw in the most recent long-term plans), there is a history of underinvestment.

2.42
We continue to consider new ways of encouraging public organisations to take appropriate action in response to our findings and recommendations. This is also a challenge for audit offices in other countries. There could be opportunities to learn from them about their experiences influencing positive change.

Increased focus on performance reporting

2.43
I, along with many former Auditors-General, recognise that robust and comprehensive performance reporting is a crucial part of accountability and have encouraged improvements in public organisations' performance reporting.9 I have appointed a dedicated role for performance reporting and produced further good practice materials.

2.44
Parliament has also recognised the need to modernise performance reporting. During an annual review debate in the House in April 2022, the Minister of Finance noted that:

More broadly, when the Auditor-General refers to the question of performance reporting, we are happily taking that report away and working out how we can develop a better longer-term approach.

2.45
With this acknowledgement, we are in a position to provide support to Parliament as it seeks improvements in this important area of public accountability.

Influencing improvements in public accountability

2.46
A robust public accountability system is vital to maintaining trust in the public sector. We have invested in understanding the effectiveness of the current public accountability system and produced reports on where the public accountability system can be improved. These reports have included Māori perspectives on public accountability.

2.47
This work has underpinned the Office's position as we look to influence improvements to public accountability – in particular, in sectors undergoing significant reform.

2.48
I was pleased that our submission on the health reforms resulted in several changes to enhance public accountability, including changes requiring our Office to provide assurance on the New Zealand health plan and the public reporting of performance against it.

2.49
I was also pleased with the interest in our submission on the Water Services Entities Bill as part of the three waters reform, given our focus on improving public accountability of the proposed new water services entities.

Staff capacity and capability has increased

2.50
My focus has been on establishing transparent and modern systems and processes for people management and development.

2.51
In the last two years, we have built a new competency framework, provided active career management support for staff, and implemented a transparent and competitive remuneration framework. Our overall staff engagement remains strong and higher than the public sector benchmark.

2.52
We have added more resources and attempted to address remuneration and other pressures. However, the Office still has high turnover, particularly audit staff from our in-house audit service provider, Audit New Zealand. This is largely driven by high workloads and a competitive market for trained accountants that is likely to continue for some years.

2.53
Our remuneration system ensures that, for like-for-like roles, gender pay gaps are minimal and often show negative gaps (that is, women paid more than men). The particular challenge for our organisation is in addressing vertical segregation (where there are more men than women in senior positions) and occupational drivers (where traditionally higher-paid roles are held by men). This is not an issue in all parts of the organisation but is particularly an issue in Audit New Zealand.

2.54
Bringing more women into senior levels in Audit New Zealand is clearly a matter to address and there is work under way to do this.

2.55
The Office's current people strategy is due to be refreshed. We have an opportunity to consider recruitment and retention in the current environment when developing our new strategy.

We are improving our systems capability

2.56
When I started as Auditor-General, many of the Office's information systems had been developed in-house and staff had enhanced them over time when resources allowed. This meant that:

  • many of our core systems were close to the end of their useful life and had security, maintenance, and resilience risks;
  • we were not making the best use of the expertise and technology available from the marketplace;
  • critical functions had limited technology support; and
  • information and data held in the Office was not easily accessible, making it more difficult to draw out insights.

2.57
The Office was also struggling with increased complexity in the delivery of public services, growing service demand, and meeting the level of service offerings that were increasingly expected by public organisations and our staff.

2.58
We now have an Information Systems Strategic Plan to inform our investment in new technology and to enable us to work more effectively and efficiently, including using data and analytics better.

2.59
We are two years through a five-year programme to modernise our information systems technology. The work we have completed so far has largely involved strengthening the Office's critical business tools and security, identifying and procuring a new audit tool for Audit New Zealand, and preparing to move important systems to a cloud-computing environment. Overall, we remain on track to transform key technologies by the end of my term, and we will continue to invest in our information systems.

Cultural capability is an area of focus

2.60
Over many years, the Office has completed work that has particular relevance to Māori.10

2.61
We have recently developed a te ao Māori strategy to help build the Office's cultural capability. The strategy includes developing a position statement describing the Office's role in relation to Te Tiriti o Waitangi/The Treaty of Waitangi (the Treaty), an examination of the Office's history, independent research on Māori perspectives on public accountability, and appointing a Kaiwhakahaere to lead this work in the future.

2.62
As well as this more strategic work, we have rolled out training to staff to develop their confidence and competence when engaging with organisations that operate on the basis of tikanga Māori, including training in te reo Māori and tikanga. Our annual discretionary work programme also includes a series of topics examining how well the public sector is delivering outcomes for Māori and how well public organisations are meeting their Treaty obligations.

Progress against the Office's strategy

2.63
In summary, the Office has made good progress in delivering our strategy. The strategic shifts we have made have, in general, been recognised both internally and externally.

2.64
However, we have faced long-standing challenges in delivering our mandatory audit work, which have become more apparent and urgent as a result of the Covid-19 pandemic. New challenges have also arisen. We discuss these further in Part 3.

4: According to Transparency International, the pillars of a national integrity system typically include the legislative branch of the government, the executive branch of the government, the judiciary, the public sector, law enforcement, the electoral management body, the Ombudsman, an audit institution, anti-corruption agencies, political parties, the media, civil society, and business.

5: Public organisations include government departments, Crown entities, State-owned enterprises, tertiary education institutions, Crown research institutes, electricity distribution businesses, local authorities, council-controlled organisations, and schools.

6: Office of the Auditor-General (2011), Appointing public sector auditors and setting audit fees. Note that the number of mandatory audits can change over time.

7: See section 12 of the Act.

8: Exceptions to this include sections 65Z and 65ZA of the Public Finance Act 1989 and the Auditor-General's role under the Local Authorities (Members' Interests) Act 1968.

9: See, for example, Office of the Auditor-General (2009), The Auditor-General's views on setting financial reporting standards for the public sector, page 8.

10: See, for example, Office of the Auditor-General (2016), Summary of our Education for Māori reports.