Annual report 2022/23

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

I am pleased to present my annual report for 2022/23.

In 2022/23, New Zealanders continued to experience disruption and uncertainty. Although there was less immediate disruption from Covid-19, the social and economic effects of the pandemic continue to be felt. The severe weather events this year caused extensive damage and are a stark reminder of the impacts we are increasingly likely to face because of climate change. Global instability and other factors have also affected economies worldwide, resulting in inflation, sharp rises in the cost of living, and an uncertain economic outlook. Considerable public money has been spent responding to these issues.

The public’s trust and confidence in the public sector are fundamental to successfully responding to current and future challenges. Although the trust that New Zealanders have in the public sector remains high, we must not take this for granted. We know that trust in the government and public institutions is declining globally and, as we saw during the pandemic, misinformation can undermine the trust that people have in the public sector and in New Zealand's system of government.

These circumstances reinforce the importance of the role of my Office as a source of independent and trusted information about public sector performance and accountability.

Public sector audits

Annual audits form most of my Office's work and are fundamental to the work we do that contributes to trust and confidence in the public sector. Annual audits help ensure that public organisations report reliable and relevant information to the public about how they have used public money and how well they have performed.

At the outset of the pandemic, I made it clear that my Office's focus was on completing quality audits. A significant amount of public money was being spent in unprecedented ways and circumstances. However, given the constraints of the pandemic, completing quality audits took time and resulted in audit deadlines being extended by Parliament and some audits being deferred.

In 2022/23, the pandemic continued to affect the nature and timing of our annual audits. My focus has been, and continues to be, on returning annual audits of public organisations back to the timeliness we saw pre-pandemic, while maintaining their quality. The first half of 2022/23 was particularly challenging, with audits affected by the global auditor shortage and other Covid-19 effects, including staff illness at audit service providers and public organisations.

Audits have also become more complex as public organisations and auditors navigate a range of complicated issues and disruptions to normal work patterns.

Timeliness also relies on public organisations being ready for their audits. The pandemic put pressure on public organisations, resulting in many finding it challenging to provide auditors with adequate information in a timely way, despite extensions to their reporting deadlines.

Given these challenges, I directed my auditors to prioritise audits most important to New Zealand’s public accountability system – such as the financial statements of the Government, many government departments, and Financial Markets Conduct reporting entities, such as Auckland Council. I also decided to reallocate work among audit service providers where there was capacity to do so.

I am pleased that we completed 74% of the audits of large public organisations on time in 2022/23. For others, many were not completed on time because information was not ready to audit.

Most of the deferred audits of large public organisations are now up to date. Audit New Zealand, my in-house audit service provider, is well placed to return to pre-pandemic audit completion rates. However, parts of my portfolio, particularly schools, are audited by private sector auditors and remain under pressure to return to pre-pandemic audit completion rates.

New Zealand is not alone in facing these challenges. The United Kingdom’s National Audit Office (NAO) is aiming to return to 70% of its pre-pandemic audit levels by the end of 2023/24. Only 12% of the United Kingdom’s local government bodies received audit opinions in time to publish audited accounts for 2021/22 by their extended deadline of 30 November 2022.

Although we are well placed to return to prepandemic timelines in 2023/24, we know this will require ongoing improvements from both auditors and public organisations.

Strengthening our core assurance role for the future

Strengthening our core assurance role is the first priority for our strategic intentions to 2028. The public audit system is critical to robust public accountability and we must ensure its long-term sustainability.

As I noted in my October 2022 mid-term review, the audit profession faces a range of challenges. This includes a significant decline in the number of students enrolling in accountancy-related subjects at university, the increasing costs and complexity of audits, and threats to the profession’s reputation. The effects have been felt by audit service providers worldwide.

Strengthening our core assurance role includes work to ensure the sustainability of Audit New Zealand. In the second half of 2022, we completed a review to ensure that Audit New Zealand is both efficient and resourced to carry out its work. We are well under way with implementing the main findings of that review and will complete this work over the coming year.

Ensuring that Audit New Zealand remains financially sustainable will be a key focus for the remainder of my term. Audit New Zealand’s revenue depends on the audit fees it charges public organisations. Increasing audit complexity, a shortage of auditors, and audit costs rising faster than audit fees has put pressure on Audit New Zealand.

To complete the deferred audits and get back to a position that will enable Audit New Zealand to complete audits within normal statutory reporting deadlines, I reallocated about 80,000 hours (about 20%) of Audit New Zealand’s workload to other audit service providers, where I was satisfied that there was capacity and that quality standards could be met.

Parliament has also invested in Audit New Zealand to ensure that we can rebalance its portfolio and to compensate for unrecoverable inefficiencies as a result of Covid-19.

Sustainable audit fees

Our audit services must be financially sustainable. The Public Audit Act 2001 (the Act) requires audit fees to be reasonable. In practice, this means that fees need to be reasonable for the public organisation being audited as well as for the auditor.

Fees for many public organisations were constrained during the pandemic. We have been reviewing and moving to sustainable audit fees in sectors where fees have not kept pace with the rising costs of providing a quality audit. I recognise that this comes at a time when many other costs are rising, however we must ensure that fee levels are reasonable. We will also continue to work with public organisations to ensure that audits are completed as efficiently as possible.

Public sector reforms

The public sector is operating in an environment of significant reform. In particular, the reforms to the health and tertiary sectors and changes to water services create a wide range of challenges. I have new responsibilities because of these reforms.

The Pae Ora (Healthy Futures) Act 2022 created new agencies to replace a number of health organisations, including the 20 district health boards. The fundamental nature of the changes, and the scale of Te Whatu Ora, will have implications for how we approach our audits in the health sector, including how we consider risks and how we can best add value.

This year, we have also been preparing our approach to auditing Te Pae Tata, the New Zealand Health Plan. This is an important new assurance role for the Office.

Our submission on water reforms influenced better accountability and audit arrangements for the water services entities. The Water Services Act 2022 requires the Auditor-General to audit the water services entities’ statement of intent, infrastructure strategy, and consumer engagement strategy.

I am pleased that Parliament has reinforced the importance of rigorous independent assurance as part of the reform process.

Supporting strong integrity practices

The public sector response to recent crises has involved significant spending, the use of high-trust policies, policies prepared at speed, and urgent procurement processes. These have been necessary steps, but they come with risks to probity and can raise questions about integrity and value for money. We have been actively involved in reviewing the government’s responses to these events.

In 2022/23, we developed and promoted our integrity framework with senior public sector leaders and governors. This framework encourages whole-of-organisation approaches to creating a culture of integrity.

We have examined matters where we had concerns about integrity and found recurring themes of a need to strengthen how conflicts of interest are managed and a need to improve the robustness of procurement processes.

We also reviewed how well the New Zealand Defence Force (NZDF) had designed and reset its programme aimed at eliminating inappropriate and harmful behaviours and sexual violence in its organisation. We will continue to independently monitor, assess, and report on whether NZDF is eliminating these behaviours from its workplaces.

Influencing better performance reporting

This year we continued to focus on improvements needed to the information that public organisations provide about their performance. It is still too hard to tell what New Zealanders are receiving for about $160 billion of central government expenditure each year, and whether it represents value for money. I have raised this matter in several of my reports, as well as directly with the Officers of Parliament Committee. In my view, fundamental changes are needed to the system for how public organisations are required to report on performance, to ensure that the public sector meets the accountability requirements of a 21st century New Zealand. This is an important and urgent matter.

We regularly discuss with Parliament and public sector leaders the need to see improved performance reporting at the organisation, cross-agency, and all-of-government levels.

In this regard, I welcome the report of the Standing Orders Committee recommending the establishment of a select committee to conduct an inquiry into performance reporting by the government and for changes to parliamentary scrutiny more generally. These create significant opportunities to better hold future governments to account for their performance.

Improving trust and performance

Our performance audits, inquiries, and other work help to improve trust in, and the performance of, public organisations.

Through this work we have continued to focus on matters of importance to improving the lives of New Zealanders. This included examining how public organisations are meeting the needs of people affected by family violence and sexual violence, how well public organisations are supporting Whānau Ora and whānau-centred approaches, and how the Cost of Living Payment was designed and implemented.

I am encouraged to see, through our follow-up work, that public organisations are implementing our recommendations for improvement.

We have also continued to raise the profile of our Controller work. Parliament’s control over public spending is a fundamental aspect of our system of government. The Controller work provides important assurance on whether public money has been spent within the authority provided by Parliament.

Strengthening our relationships

Building and maintaining relationships with our stakeholders is crucial to how we influence positive change.

We have continued to hold good-practice events for public sector leaders and audit and risk committees, and communicate regularly with chief executives and the governors of public organisations about key findings from our work.

In the local government sector, we have delivered induction sessions to elected members. These focused on the role of the Office, what public accountability means for councils, the importance of a strong integrity culture, managing conflicts of interest, improving the effectiveness of audit and risk committees, and areas of focus for the upcoming 2024-34 long-term plans.

Māori have lower trust in the public sector than the general population. We are interested in how the public sector can improve its service delivery to, and outcomes for, Māori. To do this we too must be well connected to the concerns and interests of Māori.

In 2022/23, we continued work on our te ao Māori strategy. The strategy will help us build our organisational capability and capacity in te ao Māori, and to better connect our work with Māori.

I established a Rōpū Māori to advise me as we look to increase our impact in areas of public sector performance affecting Māori. The Rōpū Māori is designed to provide valuable insight, advice, and guidance to my Office.

Our international team has continued to play an important role in supporting accountability and transparency in the Pacific. This has been done directly through the seminars we run and through the twinning relationships we have with Auditors-General in Samoa and the Cook Islands. Through my role as Secretary-General, we have also supported the Pacific Association of Supreme Audit Institutions (PASAI) to deliver capability development programmes and support to developing Supreme Audit Institutions in the wider Pacific region.

I am also the Auditor-General of Tokelau and Niue. A key achievement this year was the completion of many of the delayed audits of the financial statements of the Government of Niue and excellent progress on a similar programme for the Government of Tokelau.

International reputation

The Office and our staff continue to be highly respected in the international audit community. This year we were invited to be one of the reviewers of the United States Government Accountability Office. Our Assistant Auditor-General Audit Quality sits on the International Public Sector Accounting Standards Board (IPSASB), and our former Deputy Auditor-General also sits on an international board, as noted below.

Deputy-Auditor General

Greg Schollum retired from his role as Deputy Controller and Auditor-General on 30 April, after nearly eight years and after more than 19 years working in the Office. Greg made an enormous contribution to the Office, New Zealand’s public sector, and the accounting and auditing profession locally and internationally. He will carry on contributing in many ways, including on the International Auditing and Assurance Standards Board.

On 1 May, we welcomed Andrew McConnell as our new Deputy. Andrew joined us from the Ministry for Primary Industries. He has also held senior roles at the Department of Internal Affairs and the Ministry of Justice and was previously a Sector Manager at the Office.

Thank you

I thank my staff and audit service providers for continuing to deliver quality work in a challenging environment. Every day they make a positive difference to the performance of the public sector.

I also acknowledge public organisations for their constructive engagement with my Office.

Finally, I thank Parliament for its deep interest in and support for our work. Parliamentarians have a difficult job, and I am proud that my Office plays a strong and positive role in supporting them.

Nāku noa, nā

John Ryan
Controller and Auditor-General | Tumuaki o te Mana Arotake

26 September 2023