Auditor-General’s overview

Annual report 2003/04.

“Over the 2003/04 year, the Office has continued to deliver its core outputs amid an environment of significant and continual change and challenge. In addition, we have done much work to define our Strategy for the next five years and start making it happen.”

It is a pleasure to present my Annual Report for the year ended 30 June 2004.

This report is intended to provide a comprehensive understanding of the performance of my Office – from both financial and non-financial perspectives. I view it as being a critical component in my accountability as an Officer of Parliament, as it enables me to be held to account for the outputs produced by my Office and the stewardship of the public resources which are under my control.

In preparing this report, I have sought to demonstrate good practice in the reporting of information, particularly in the areas of outcomes, governance, risk and capability. I see this as part of my role to set a model of desired improvements that I would expect to see in public entity reporting.

The year in review

The Office faced a range of significant challenges in the 2003-04 year. We produced a number of high-interest reports, we introduced a major change to the way auditors are chosen for annual audits, and we developed our Strategic Plan for the remainder of my term as Auditor-General – all this amid an environment of significant legislative and professional change and with no additional in-house capability.

I am proud of the achievements of the Office over the past twelve months. Over the next few pages, I would like to refer to some of these successes, as I review progress against my key objectives for 2003-04 which were set out on page 5 of my Annual Plan 2003/04.

Preparing our Strategic Business Plan

Significant work has been undertaken to develop a clear and accepted Strategy for the remainder of my term as Auditor-General (i.e. to 2009). This work formed the basis for the development of a five-year Strategic Plan together with a three-year Business Plan. Both documents were endorsed by the Officers of Parliament Committee.

We have decided on a strategy of “product leadership” – where the Office will strive to make more of a difference through the continual re-shaping of our products/services and the ways we deliver them to meet the changing environment and the needs of our stakeholders. Our Strategy relies on the Office continuing to be operationally excellent, and maintaining strong relationships with our key stakeholders.

On the basis of the strength of the work undertaken, together with the standing of the Office, Parliament has approved increased funding over the next three years.

Planning to provide the required capability for changes in our operating environment, particularly in local government

A key focus area in our five-year Strategic Plan is the restoration and enhancement of the Office’s capability to better respond to the changes in our environment and deliver on our Strategy.

Under the previous contestable audit model for selecting auditors to carry out annual audits, the responsibility for developing audit approaches fell primarily on Audit Service Providers (ASPs). Given the constraints of pricing and the limited coverage some ASPs had in relation to our key sectors, this did not occur to the desired or appropriate level. In addition, there have been significant increases in operating costs which the Office has largely absorbed through the deferral of recruitment/replacement of staff and a reduction in staff development.

A result of the contestable audit model has been a depletion of the Office’s capability over the past few years. This is particularly evident at senior staff levels, where workloads have increased significantly and there is continual drain on the same individuals to carry out demand-driven work (inquiries), and to maintain the currency of our assurance products/services (research and development, and product development) in addition to delivering the Office’s agreed outputs. A consequence of this has been timeliness issues for the delivery of inquiries and performance audits.

Our three-year Business Plan acknowledged the investment needed to attract, develop and retain key staff. This included, as a priority area, additional capability to respond to the changes arising from the Local Government Act 2002, specifically in relation to the requirements to audit Long-Term Council Community Plans.

Implementing changes for the appointment of audit service providers resulting from the review of the contestability of annual audits

During the 2003-04 year, we introduced our “audit resourcing model” for selecting auditors to carry out annual audits of public entities. This model replaces the previous contestable audit model, and allows for the “allocation” of annual audits.

Introducing this new way of working required a high level of communication and consultation both with ASPs and with the audited entities. The outcome I was seeking from this was greater breadth and depth of ASPs in our key sectors. We now have up to three ASPs with sufficient audits in each of our key sectors (Central Government, Local Government, Health and Tertiary) and, where possible, these audits are located within geographical proximity. With this greater concentration of audits in sectors and locations, these ASPs should have more ability to invest in, and contribute to, the development and knowledge of sectoral issues and audit approaches.

Implementing our governance and risk management framework

Arising from our work on the five-year Strategic Plan and introduction of the audit resourcing model, we have reviewed and realigned our governance arrangements across the Office. Specific changes have occurred in the way we manage the Office; i.e. our leadership model, which includes how Audit New Zealand is led and managed in relation to the Office of the Auditor- General, and which considers the relationship with other ASPs (private sector auditing firms). Our supporting governance infrastructure of an Audit Committee, other Review Committees and our internal Code of Conduct remain unchanged. These complete arrangements are outlined in detail on pages 39-57.

We now have an internal structure which frees us up to collaborate better – i.e. to share information and resources to achieve enhanced outcomes for our stakeholders – and which ensures appropriate accountability for the management of our operations.

We also substantially completed the implementation of our risk identification and management framework. This is a comprehensive framework which ensures a dynamic and ongoing reassessment of our key strategic, operational and professional risks, and ensures that there is appropriate management ownership of risk mitigation actions. We have integrated our risk management framework within our annual and business planning processes. Our Risk Report on pages 59-66 details this framework.

The year ahead

Parliament’s confidence and support in the Office – as evidenced through its provision of increased baseline funding for the Office – means that the year ahead is one of opportunity for the Office.

We now need to translate the increased funding into tangible development of our core assurance services, and into the growth and development of our staff.

In 2004/05, we intend to deliver on our research and development, and product development plan, and, at the same time, establish the “building blocks” for our Strategy – things such as the bedding in of our Project Office approach, the review and alignment of our corporate policies and systems, the implementation of initiatives for greater collaboration among ASPs, the development of better mechanisms to capture stakeholder feedback, and the implementation of enhancements to our Strategic Audit Planning process. We also intend to invest in the development of our staff through targeted focus on professional and personal development.


I believe we can “make more of a difference” to our stakeholders. The work we have done in 2003/04 has positioned us to better understand and better meet our stakeholders’ needs and adapt to the changes in our environment.

I would like to thank my staff and all our ASPs who work with the Office for their contributions and efforts over the past year. I am fortunate to have such highly competent and professional people working for and with the Office.

Kevin Brady
Controller and Auditor-General

30 September 2004

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