Auditor-General's overview
E ngā mana, e ngā reo, e ngā karangarangatanga maha o te motu, tēnā koutou.
We are fortunate to have a public financial system in New Zealand that ensures regular and transparent reporting, aligned with internationally recognised accounting standards, on the Government’s financial position and performance. This plays an important role in building the public’s and Parliament’s trust in the Government.
However, trust in public institutions is declining internationally. In New Zealand, research shows that the public’s trust and confidence in the public sector has declined since 2021. New Zealand has also dropped in its score and ranking in the Transparency International Corruption Perceptions Index.
We should all be concerned about this downward trend. Trust in the public sector is critical to how well our democracy functions.
Independent auditing of this information supports Parliament, the public, and the international community to have confidence in the integrity of New Zealand’s public finance system.
My Office’s work in central government
This report describes the results of our audit of the Financial Statements of the Government of New Zealand (the Government’s financial statements). It also reports on the findings from our Controller work (where we monitor government spending to check whether it is in line with parliamentary authority).
The Government’s financial statements
The Government’s financial statements remain, in many respects, world leading. They are prepared and audited within three months of the end of the financial year and published soon afterwards.
The Government’s financial statements are consistent with generally accepted accounting practice. They include information about the Government’s revenue, expenses, and liabilities, the value of its assets, and an account of the Government’s net worth.
This information tells the public, Parliament, and international audiences about how the Government is managing its finances and gives some insight into its ability to manage public finances over the longer term and to respond to future shocks or emergencies.
My audit report for the 2023/24 financial statements included an unmodified opinion. This means that I am satisfied that they present fairly the Government’s financial performance and position, and that they comply with generally accepted accounting practice.
This year, the Government’s financial statements were prepared in a context of significant change as central government responded to the new Government’s priorities and policy agenda. When we carried out our audit, many central government organisations were implementing extensive change processes to align with changed priorities and to meet the Government’s expectations that they reduce costs.
This created a challenging environment for finance teams in many central government organisations. There were some delays to the preparation of financial information and more adjustments and corrections were made than in previous years. Despite this, the financial statements were prepared and the audit was completed by the statutory deadline of 30 September.
Key audit matters
In my audit report, I describe several key audit matters. These are matters that I consider to be of most significance to the audit of the financial statements. They are typically matters that are complex, have a high degree of uncertainty, or are particularly important to the public because of their size or nature.
As in previous years, I included a key audit matter about the amounts still owed to employees who were paid less than their legal entitlements under the Holidays Act 2003. The financial statements included a provision of $2.4 billion for amounts owing to tens of thousands of public sector employees over many years. Health New Zealand – Te Whatu Ora and the Ministry of Education have the most affected current and former employees.
I am aware that Parliament has previously expressed concern about the continued non-compliance with the Holidays Act 2003, particularly in the health sector, where most of the liability is. I understand that the recently appointed Commissioner of Health New Zealand – Te Whatu Ora is to prioritise payment of the liability this financial year. It is a matter I have asked my staff to regularly brief select committees on.
This year, I included a new key audit matter about whether there is a liability in relation to the Government’s commitments to achieve its carbon targets, including the Paris Agreement commitment to reduce net greenhouse gas emissions to 50% below gross 2005 levels by 2030.
The Treasury assessed that at 30 June 2024 there is no liability related to the Government’s commitments to achieve its carbon targets under the Paris Agreement. The Treasury provided an additional and improved disclosure about this matter in the commentary to the financial statements.
We agreed with the Treasury’s assessment. We also recommended that, each year, the Treasury continue to reassess whether a climate liability should be recognised and, where necessary, continue to improve disclosures about climate change and its impact on the Government’s financial statements.
Increasing unappropriated expenditure
The Government needs Parliament’s approval to spend public money. It provides this approval through appropriations voted by Parliament as part of the Budget process. Appropriations set out what the Government can spend public money on, when it can spend it, and how much it can spend. In most instances, expenditure outside of Parliament’s approval (unappropriated expenditure) is unlawful.
The Controller function is an important part of my role as Auditor-General. It supports the fundamental principle of Parliament’s control over government spending. To fulfil this role, my Office monitors public spending throughout the year to determine whether it is in line with parliamentary authority.
In 2023/24, $1.17 billion (0.62% of the Government’s budget) was incurred outside what was authorised by Parliament. The incidence of unappropriated expenditure reached a historical low in 2020/21, with 12 instances. Since then, there has been a steady increase in the instances of unappropriated expenditure – rising to 21 in 2023/24.
Although the proportion of unappropriated expenditure compared to the Government’s budget is low, many of the cases of unappropriated expenditure were easily preventable. We continue to work with the Treasury to ensure ongoing focus on this important area of accountability.
Further reflections on the public sector
This report, which I do annually, would typically provide wider reflections on the work of my Office, including from our performance audits, inquiries, research, and other reporting. My term as Auditor-General concludes on 1 July 2025. I have therefore decided to publish a second report before I retire as Auditor-General with my broader reflections on the public sector, which will incorporate observations from our work over the last year.
Acknowledgements
The Government’s audited financial statements are crucial to maintaining the integrity of our public finance system. Their preparation is a significant undertaking, requiring highly pressured work by the broader public sector, the Treasury, and my auditors. The integrity of our financial system is underpinned by robust audits.
I acknowledge in particular the work and expertise of the Treasury in its leadership of public sector accounting and its constructive engagement with my Office. We should all recognise the professionalism of the Treasury in its role in preparing these financial statements.
I also acknowledge the work of my staff and other audit service providers. They make many carefully considered judgements in forming their opinions, work under considerable pressure, and maintain an unwavering focus on audit quality.
Finally, I thank Parliament for its ongoing support of my Office and interest in the work we do.
Nāku noa, nā
John Ryan
Controller and Auditor-General | Tumuaki o te Mana Arotake
18 November 2024