Part 4: Improving government performance reporting

Central government: Results of the 2019/20 audits.

In this Part, we set out our observations about performance reporting across government.

Performance reporting is fundamental to building and maintaining trust and confidence in the public sector. Each year, government departments and Crown entities in central government are required, under the Public Finance Act and the Crown Entities Act 2004, to report on their performance through preparing and presenting an annual report to Parliament.

An annual report is important for Parliament and the public to hold government departments and Crown entities to account.

An annual report is required to report on financial performance as well as end-of-year service performance reporting against the public organisation's annual performance objectives. It also includes progress against the public organisation's strategic intentions and financial management responsibilities.

As part of the annual audit, we are required to audit the financial statements and end-of-year service performance reporting.

Effective performance reporting should fairly reflect the underlying performance of public organisations and, when considered in aggregate, the public sector more generally. It should be timely, relevant, meaningful, and enable Parliament and the public to make an informed assessment of performance.

The Government's response to Covid-19, including the significant increase in spending, has further increased the importance of building and maintaining trust in how effectively the Government is spending and how it needs to engage with the public to support effective public accountability.

Although there are instances of good performance reporting throughout the public sector, there are, in our view, considerable opportunities to improve.

Reporting at an all-of-government level

In June 2020, the Public Finance Act was amended to introduce requirements that the Government set out its well-being objectives on an annual basis to guide its Budget decisions. The amendment also required the Treasury to periodically report on well-being.

Our submission on this amendment noted that there should be cohesive and comprehensive reporting to Parliament and the public on how the Government is performing and progressing against its well-being goals, which should be independently assured.

If this reporting and other service performance reporting was presented in conjunction with the reporting on the Government's financial statements, this would tell a richer, more comprehensive, and more cohesive story of what the public receives from government spending. It would provide a basis for Parliament and the public to understand the services being provided and the impacts and outcomes the Government is achieving.

Reporting for initiatives that involve multiple organisations

When auditing government initiatives that involve multiple public organisations working together, we often find that their reporting approach is siloed and focused on the activities and spending of individual organisations.

For example, our audits of Whānau Ora and the Provincial Growth Fund (noting the range of organisations involved) found that the reporting did not, from the start, provide an adequate overview of the initiative as a whole or what was achieved with that money.

We recommend more cohesive and comprehensive reporting for these types of cross-organisation initiatives. Requirements for this reporting should be included when new initiatives are established. This would enable more effective accountability to Parliament and the public.

The Public Service Act and the amendments to the Public Finance Act enable the formal establishment of "specified agencies" such as interdepartmental ventures and interdepartmental boards to support more joined-up services and reporting throughout the public sector. We remain interested in seeing how accountability and reporting processes for these new types of public sector agencies will be established.

Reporting at an organisation level

Our annual audits have found that public organisations' reporting on progress against strategic and annual performance objectives and financial management responsibilities generally comply with legislative requirements.

Public organisations generally use performance frameworks as the basis for telling their performance story. They have tried different measures and approaches to how they can provide overviews of their performance and what they have achieved.

Although there are challenges inherent in good performance reporting, we consider that substantive improvements are still needed.

Currently, the reporting focuses too heavily on reporting plans, activities, and services without any clear account of how those activities result in value for money and make a difference to the lives of New Zealanders. There should also be a better connection between the financial and non-financial reporting.

We also observed many instances of highly technical reporting and measures that few members of the public would likely understand. Performance reporting that is not relevant or understandable to most people has little value.

The public sector's reporting needs to connect with the public better. Engaging with the public should be a fundamental part of what the public sector does. Public organisations should consider this when they report on their performance.

Performance reporting needs to be presented in a timely and accessible way that Parliament and the public can understand.

Many annual reports still do not provide cohesive and comprehensive performance reporting. The reporting is often fragmented and does not clearly connect to the public organisation's strategic objectives, annual performance objectives, and use of public money.

The public is not only the recipient of public services, but it also has a long-term interest in other matters such as outcomes, risk management, integrity, and the prudent use of public resources. As a result, the public expects to see information about how well public organisations are managing their operations, and resources, to meet challenges of today and in the future.

As well as maintaining its strengths in financial reporting and accountability, the public sector needs to improve how it accounts for its performance. This presents both an enormous challenge and opportunity.

Starting the change process

Significant improvement is needed if Parliament and the public are to fully understand and scrutinise public sector performance and, in particular, the stewardship of the many complex, long-term, and intractable problems facing New Zealand.

Meeting this challenge needs to start with making performance reporting matter.

During the past 30 years, the public sector has established a robust and transparent financial management system. There needs to be the same focus and effort on how the public sector reports on, and is held accountable for, its performance.

Performance reporting cannot be seen as a compliance exercise or secondary to financial reporting. It should be properly integrated into how the public sector reports on its spending and enable the public to have confidence that it is receiving value for money.

This will need clear and co-ordinated leadership. Legislation, standards, and guidance, as well as our approach to providing assurance, will need to provide the right frameworks, incentives, and capability to improve performance and effective public accountability. There needs to be a clear focus on meeting the expectations and needs of Parliament and the public.

What the public expects of the Government is evolving. This will likely require developing a richer understanding of how the public sector considers performance, what public value it provides, and how it provides that value.

Doing more of the same will not likely achieve the improvement needed. The public sector will need to consider more innovative approaches to how it reports on its performance.

We have started seeing promising innovations in the public sector, such as online and integrated reporting, that aim to address some of the issues that we have identified.

It will be important for us to learn from these innovations and what is happening in other countries. My Office will continue to review how performance reporting is evolving across the public sector.

Covid-19 has been a catalyst for change in many parts of our society. The Government is also pursuing a change agenda in the public sector more generally. Placing accountability to Parliament and the public as a key element of these reforms will be critical for building and maintaining trust and confidence in government and in helping to address the many challenges that will emerge as a result of Covid-19.