Auditor-General's overview

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

I am pleased to present my annual report for 2023/24. This is my final annual report as Auditor-General.

The Auditor-General role is fundamental to supporting strong public sector governance, value in public spending, and transparency and accountability of government activities. In a world where trust in governments is increasingly challenged, the role of a watchdog independent of government and focused on ensuring that our system of public management operates with integrity is, in my view, as critical now as it has ever been – perhaps more so.

Ensuring that Parliament and the public have the information they need to understand what has been achieved through public spending and whether public organisations have operated with integrity is vital to trust. My Office plays a key role in assuring reporting done by public organisations and in helping Parliament and the public to understand whether those organisations are operating in a way that is effective, efficient, and accountable.

Although we maintain a public profile, much of what we do happens outside the public gaze. Every day my auditors will be in public organisations assessing systems and controls, considering reporting, and making recommendations for improvements. We look at questions of performance and value and look into matters where we have concerns about the use of public resources or integrity. We regularly brief select committees in both public and private sessions. We issue good practice, run seminars, and provide other guidance to help public organisations improve.

It is in this context that I reflect on our performance this year and the ongoing role of my Office in supporting trust in government.

This year's annual report shows that my Office is well positioned to deliver our work supporting the role of Parliament and the public to hold public organisations to account for their performance. Public sector audit is moving to a more sustainable footing. Our performance audits and inquiries continue to have significant impact on matters of importance to New Zealanders. Despite the pressures on public organisations, they are generally wanting to make improvements in response to our findings and recommendations. Our work continues to be held in high regard with Parliament, our stakeholders, and among the international audit community.

Public sector audits

Annual audits form over 85% of my Office's work. They give Parliament and the public assurance over public organisations' financial and performance information. Audits also help to improve public organisations' performance by considering their performance frameworks and reporting, and by providing recommendations to improve their systems and controls.

The impacts of Covid-19 on audit delivery have been extensively covered in my previous annual reports. I am pleased that we maintained audit quality through the challenging Covid-19 years and are now back on track with the timely completion of our larger audits. However, completing audits of small organisations on time, particularly school audits, is not yet where it should be and remains a challenge.

There have been a number of changes affecting the central government sector, including structural reforms in health and education that have affected the size and shape of some of the organisations we audit, and more recently the need for public organisations to adjust to a new government with new priorities. Although changes of these kinds can put organisations under pressure and risks them not being adequately prepared for the audit, I am pleased to say that we completed all our audits of critical central government organisations on time.

There is also considerable complexity and uncertainty in the local government sector. Many councils were challenged to meet community expectations for service delivery while managing difficult choices on rate and debt levels. Alongside our annual audit work, we worked closely with councils to audit their three-yearly long-term plans where councils engaged with their communities on these complex issues.

This year we completed a review of Audit New Zealand, my in-house audit service provider. This was to ensure that it remains a modern, sustainable, and resilient audit practice. Audit New Zealand's audit capacity has been rebuilt, including through international recruitment and the development of an international secondment programme. Financial performance is on track, and new technologies to support modern audit practices are being implemented. In the next year, we will continue this work and also reset Audit New Zealand's audit portfolio to best match its capability, particularly in core public sector audits.

Making a difference

As well as the hundreds of improvement recommendations that are implemented as a result of our annual audits, we have also highlighted wider areas for improvement.

For example, our performance audit on decision processes for the New Zealand Upgrade and Shovel-Ready programmes highlighted decision-making that was not transparent and inadequate public reporting, given the scale of the investments being made. Our inquiry into how Callaghan Innovation carried out a procurement process raised concerns about fairness and how a significant conflict of interest was managed.

Raising the profile of these issues is an important part of our work; so is influencing improvements. This requires Ministers, governors, and other public sector leaders to learn from our work and implement our recommendations as appropriate. Although we sometimes find recurring issues, we are also pleased that our follow-up work often identifies good progress against the recommendations we have made.

Many of our reports' recommendations are acted on almost immediately. For example, our review of vote counting errors in the 2023 General Election identified counting and control issues that the Electoral Commission is now addressing. Our performance audit of how importers of high-risk foods are monitored prompted the Ministry for Primary Industries to consult on a new food importer levy to support increased monitoring.

Although we can encourage organisations to act on our recommendations, it is ultimately up to Parliament's select committees to hold them to account. Changes to Standing Orders have strengthened select committees' ability to scrutinise the performance of the public sector. These are important changes and ones that I consider have the potential to lead to a substantial improvement in public sector accountability and performance over time. Alongside our regular advice to committees as part of the scrutiny process, we have also supported new initiatives such as structured hearing agendas, in-depth briefings, and scrutiny planning for the term of this Parliament.

We also continue to provide advice and submit on legislative matters that are relevant to audits and accountability, including the recently proposed Fast-track Approvals Bill.

Accountability to New Zealanders for performance

Over my term, I have put particular focus on performance reporting and on performance measurement more generally. Government spending is about one third of New Zealand's GDP, and New Zealanders have a right to know what is being achieved with their taxes.

In my view, the ability of the public sector to report clearly, honestly, and comprehensively on the issues that matter underpins trust in government. Although pressure from Parliament and the public can help improve the quality of reporting, I consider that legislative changes to the Public Finance Act are required to create substantive and enduring change. I was therefore pleased to see in the Finance and Expenditure Committee's scrutiny plan that it is planning an inquiry on this matter in 2025.

Outreach

While our annual audits look back at organisations' performance, another role of the Office is to share good practice to help organisations to make sound decisions and report accurately in the first place.

We continued to run regular seminars for audit and risk committee chairpersons, present publicly on our work, provide regular newsletters on topical issues, and brief management teams and governors. Our integrity framework and suite of integrity resources have been welcomed by public organisations, and we will continue to issue guidance and provide support in these and other areas in 2024/25.

We also hosted our first annual Integrity Day for public sector leaders. This day featured experts in integrity from New Zealand and overseas. Public sector leaders are often navigating in uncharted waters, especially during crises. Seminars such as these, together with our principles-based good practice material, are aimed at helping them navigate with integrity in the many ambiguous situations they face.

Supporting development in the Pacific region

The Auditor-General of New Zealand is also the Secretary-General of the Pacific Association of Supreme Audit Institutions. This group includes 30 auditors-general from across the Pacific. It plays an important role in developing capability in supreme audit institutions (SAIs) in the region.

There has been considerable progress in the Pacific, including in supporting collaborative performance audits on critical climate-related issues and progressing the financial statement audits of their governments. We also continue to support our twinned SAIs in Samoa and the Cook Islands through technical support and advocating for stronger audit independence.

The New Zealand Auditor-General is also the Auditor-General of Niue and Tokelau. I am pleased that after several years in arrears, substantial progress has been made this year to bring these audits up to date and regularise them for the future.

An Office of the Auditor-General for a 21st century New Zealand

To be relevant, my Office must ensure that it reflects the country it serves and that it is both effective and efficient.

We want both Treaty partners to trust the Office to help Parliament hold the public sector to account for its performance. I have established a rōpū Māori to provide advice to me, we have expanded our work that highlights matters of concern and interest for Māori communities, and we continue to develop our thinking on integrity in an ao Māori context. I see this as important foundational work for the Office.

A further foundation is ensuring that we have a modern technology environment. A new audit management tool is being implemented in Audit New Zealand, and all of our audit service providers are benefitting from a new audit management portal. Our data and analytics function is increasingly delivering new insights on public sector performance and identifying new tools to support more efficient audits. These investments are the foundation for more efficiency and insights from the Office.

Audit fees and the sustainability of public sector audits

Audit fees have been constrained for too long, despite significant price and regulatory pressures on audit firms. We have been taking the necessary steps to make sure that public sector audit fees recover the true costs of audits and allow for reinvestment in the capability and capacity of audit service providers. This is essential to maintaining the sustainability of public sector audits.

We have also been increasing the transparency of fees and working with public organisations on ways to increase audit efficiency. Although we recognise that both local and central government organisations are under various pressures, readiness of the audited organisation remains the key to an efficient audit.

Alongside audit fees, we will also need to confront the broader challenges facing the audit profession. Issues include fewer graduates in accounting-related disciplines from New Zealand universities, ethical failures internationally in the large firms which undermine the way the profession is perceived by the public, and finding ways to ensure that work-life balance can be provided to staff. As I said earlier, trust is fragile, and I am concerned that the profession risks losing its brand for quality and integrity because of these issues.

Continued failings in the profession will ultimately reduce trust in public sector audits. My Office will continue to reinforce the critical importance of independence to the integrity of public sector auditing.

Thank you

I thank my staff and audit service providers for delivering quality work that benefits Parliament and the public. New Zealand has a well-deserved international reputation for integrity in public life, and robust independent auditing protects that reputation.

I also acknowledge staff in all public organisations for their constructive engagement with my Office and their desire to improve performance for the public they serve, despite the many pressures and constraints they face.

Finally, I thank Parliament for its deep interest in and support for the Office's work.

Nāku noa, nā

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

30 September 2024