Assessing and grading systems and controls

For some public organisations, we use a particular framework for part of the audit. We separately examine, assess, grade, and report on the environment, systems, and controls for managing and reporting financial and service performance information. We call these "ESCO" grades.

Auditors recommend improvements to ensure that there are effective internal controls for sound management and good governance, and to help organisations to manage risks (such as errors and potential fraud).

We assess:

  • the management control environment;
  • financial information systems and controls; and
  • service performance information and associated systems and controls.

If auditors identify deficiencies, they will recommend improvements. The grades reflect the recommendations for improvement as at the end of the financial year.

Grades can change from year to year, because of changes in the organisational structure, in good practice expectations, or in auditor emphasis. How the organisation responds to an auditor’s recommendations is more important than any change in grade from year to year.

The long-term trend is a more useful indicator of progress than year-to-year changes.

Grading scale for assessing environment, systems, and controls

Grade Explanation of grade
Very good We have made no recommendations for improvement.
Good We have recommended that some improvements be made.
Needs improvement We have recommended that major improvements be made at the earliest reasonable opportunity.
Poor We have recommended that fundamental improvements be made urgently.

We report our assessments to the organisation, the responsible minister, the relevant select committee, and relevant monitoring agency. We also advise the central agencies: the Treasury, Te Kawa Mataaho, and the Department of the Prime Minister and Cabinet.

Given that our assessments and grades are focused on encouraging improvements, we do not grade any organisations that are, or will be, disestablished.

Page last updated: 18 March 2021