To achieve our Strategy 2009-12, we will use a Strategy Implementation Plan to link the strategy to our business plans and our overall communications strategy. We will establish a governance group to monitor, evaluate, and report on progress. We will develop and implement initiatives in the four areas that most influence the way we operate:

• our work;
• our finances;
• our processes; and
• our people.

Our work

Annual audits

The Auditor-General is the auditor of about 4000 public entities. Of these, 3500 are small public entities, including 2500 schools. Each of those public entities is required to prepare annual financial statements and, in many cases, to report on service performance. The Auditor-General has a statutory duty to audit the information that the public entity must report, including service performance information for some public entities as set out in legislation applying to those entities. The cost to us of carrying out annual audit work is funded mainly by fees paid by the public entities being audited.²

In 2007/08, annual audits and other assurance services accounted for more than 87% of our total expenditure.

In Figure 3, we show percentages of our expenditure by type of audit or service.

Figure 3
Our expenditure in 2007/08 by type of audit or service

Annual audits are our major output, and the basis for gathering information and building knowledge about all public entities. It is important that we carry out annual audits as efficiently as possible, and that we gather and manage information from the audits as effectively as possible.

Introducing a streamlined approach to audits

To the extent that our annual audit work is within our control, we aim to streamline what we do to gather the maximum amount of information from each audit, while keeping the level of audit work in proportion to the level of public risk for the public entity.

By keeping the level of audit work in proportion to the level of risk, we expect to be able to free up auditing expertise within the Office to improve our risk assessment for annual audits. We can use this risk assessment information to better address risk in areas of high public significance, as well as to generally deal with risks across public entities.

To achieve this streamlined approach for smaller public entities (such as those with no revenue to pay audit fees, smaller subsidiaries of other public entities, and schools), we envisage:

• better using sector-specific risk assessments;
• increasing our efforts to simplify annual audit processes and documentation; and
• carrying out specifically directed work on financial management, legislative compliance, and probity matters where we have identified issues through previous audit work.

For larger and more complex public entities (such as Crown entities, council-controlled organisations, energy companies, Crown research institutes, local authorities, government departments, tertiary education institutions, State-owned enterprises, and district health boards), we envisage:

• better using public entity-specific, sector-specific, and across-sector risk assessments that focus on corporate and governance risk, including improving our auditors’ management reporting to public entities and Parliament;
• better using risk assessment likely to affect our attest opinion on financial and service performance information;
• bringing in our revised AG-4 auditing standard for attesting to service performance information in government departments, Crown entities, and local authorities;
• increasing our sector knowledge and expertise by preparing three-year sector plans, to provide greater strategic context and specific audit work directions;
• carrying out other assurance services as negotiated with public entities, or initiating inquiries on the advice of appointed auditors to explore or pursue identified risk not directly affecting the annual audit opinion.

Investigating differentiated accountability requirements

Any variation in approach is only possible to the extent permitted by our professional and statutory obligations. However, we are acutely aware that accountability requirements – including those for an audit and the associated fees – are often a burden for smaller public entities.

Consideration of whether the size and complexity of an entity could be better used to differentiate accountability requirements could take place with the Ministry of Economic Development’s review of the Financial Reporting Framework. We also intend to research practice in jurisdictions similar to New Zealand, particularly for small public entities.

Should there prove to be appropriate alternatives to our current system, we propose bringing that information to the attention of Parliament and other authorities. Possible alternatives could include assessment of whether all public entities require an audit and allowing for assurance arrangements other than audits, such as conducting reviews rather than audits that result in positive assurance reports.

Performance audits and other studies

The Auditor-General has a discretionary mandate to conduct performance audits, which are funded by Parliament. Performance audits are significant in-depth projects. They usually involve extensive reviews of a public entity’s documents and formal interviews with a range of people. Performance audits form the bulk of the Auditor-General’s discretionary work programme.

Since 2004, we have worked on our approach for planning and prioritising our performance audit work. We scan the environment each year to assess risks and identify the issues and programmes that our performance audits could examine. Environmental scanning helps determine how we can best use our discretionary resources.

We address our responsibility to Parliament and the public to provide regular assurance about the activities of public entities that are large and complex, and/ or where it is difficult to assess their performance. Core areas of interest for the Auditor-General include public entities with responsibilities for:

• major public investment or liability management;
• public revenue management or generation;
• asset management or infrastructure spending or management; and
• expenditure, including service delivery expenditure.

We identify areas within or across public entities or sectors that warrant further examination. To assign priorities to these areas, we consider:

• the severity and significance of the issue;
• the benefit to the public of examining the issue;
• the extent to which the performance of the public entity or sector could be improved; and
• how the issue fits with the Auditor-General’s role and mandate.

We consult with Parliament and other stakeholders on our draft annual plan (and in particular on our proposed discretionary work programme) to ensure that stakeholders agree that we are addressing the issues of greatest relevance.

Our statutory responsibilities, reporting framework, and broad audit mandate mean that we carry out a lot of annual audits compared to our international counterparts. We have, comparatively, very limited discretionary resources to carry out in-depth performance audit work. For example, Auditors-General in Australia, the United Kingdom, and Canada spend from 28% to 50% annually on performance audits, while we spend less than 9%.

This means that we carry out our performance audits with significantly less resource, and at less cost, than most of our international peers. However, it also means that, at times, we are not able to do as much in-depth work as we or our stakeholders would like, and that many significant public entities may receive little or no in-depth attention.

Using annual audit information to improve our performance audit planning

Topics for performance audits must be of interest and use to our stakeholders, and must also produce results that can be useful to as many public entities as possible. We are satisfied that the approach we have developed as part of our 2004-09 Strategic Plan has improved the way we plan and prioritise performance audits, particularly in identifying and addressing the interests of Parliament and other stakeholders. However:

• much of our knowledge about public entities and their risks results from our annual audit work; and
• we anticipate increasing financial constraints on public entities, accompanied by expectations that they can demonstrate the outcomes of services and cost-effective delivery of those services.

As a result, we consider that during 2009-12 we need to better integrate the risk information and intelligence from our annual audit work and other audit and inquiry work into our process to identify and select topics for performance audits and other studies. We expect to continue developing good practice guides as needed during 2009-12 and will consider other performance audit initiatives that respond to annual audit risks and issues at the public entity, sector, and across-sector levels.

We also need to better develop our scoping and planning of performance audits to consider whether and how these audits can assess the effect of services and the cost-effectiveness of service delivery. Carrying out such performance audits may result in more complex and costly performance audits than those we currently do. For our 2004-09 Strategic Plan, we received additional funding to increase the number of performance audits and other studies to 19-21 a year. We have achieved this level and aim to continue to do so in the future, while maximising the value and insight that can be generated from our work in this area.

During 2009-12, we will consider whether the amount we spend on performance audits is adequate to provide the assurance expected by Parliament and the public, and whether we may need additional funding for performance audits and other studies in future. While our discretionary resource is a small part of the Office’s total resource, the discretionary work is strategically important given its in-depth nature and its public and Parliamentary profile. The Auditor-General’s discretionary reporting mandate allows us to focus more on risks and issues that arise from annual audits, but that are not necessarily able to be fully addressed within these audits.

Inquiries

The Auditor-General has discretion to inquire into a public entity’s use of resources. The Auditor-General can carry out inquiries on his own initiative or when a request from a member of Parliament or the public draws attention to a particular issue. The Auditor-General has not usually initiated inquiries in the past, and this function has for many years effectively operated as an avenue for people to request an independent review of the actions of a public entity when they have concerns. This is an important role, but our ability to discharge it is constrained by the funding we receive from Parliament.

We receive about 250 requests for inquiries each year, most of which are classed as routine. Sensitive and major inquiries involve more complex issues and may attract a broader level of public interest and attention. In these inquiries, we will often review a public entity’s files in some depth and may also formally interview people. Consultation with affected parties on our draft findings is a significant and often time-consuming part of the process, but is important to ensure the accuracy of our conclusions and to protect the rights of those involved. We advise the correspondent and the public entity of our inquiry results and will also report publicly in appropriate cases.

Changing demand for inquiries

While the number of major and sensitive inquiries is not necessarily increasing, those we carry out are becoming more complex and demanding. For example, we are often requested to inquire into the decision-making of local authorities throughout the life of major infrastructure projects, particularly if the project is at all controversial. Such requests often involve consideration of some or all of the legal and administrative requirements associated with local government decision-making, good procurement practice, and conflict of interest questions. The factual and legal context can also be very complex.

Given the focus on infrastructure investment across the public sector at present, and concerns about value for money, we expect such requests to continue and perhaps to increase. We understand the concern that people may have about decision-making of this kind and consider that it is important to be able to provide public assurance over it. However, we note that major and sensitive inquiries often have high resource requirements and can take many months. It remains a challenge to manage them in a way that does not affect our ability to complete our other commitments to Parliament.

We note two other factors that are contributing to the increasing pressure of major and sensitive inquiries on our resources:

• Many inquiry requests are from Ministers and other members of Parliament on matters where other agencies are also carrying out reviews. This possibly reflects that, despite other work, an independent perspective is also seen as valuable. The immigration inquiry, with its wide-ranging issues, is an example of a particularly complex inquiry that involves concurrent review of various aspects by other agencies.
• Legislation such as the Local Government Act 2002 describes requirements in terms of decision-making responsibilities that a local authority must take into account throughout a decision-making process. As noted, where there is a high level of public interest in a particular decision, we are often asked to inquire into a local authority’s decision-making processes. Two recent examples are the proposed redevelopment of Carisbrook Stadium and Christchurch City Council’s inner city property purchases in 2008. We investigated both of these matters because they involved the use of public resources and because we have a statutory role in legislative compliance. While a judicial review is available to those who raise concerns, the costs are high relative to other public administration processes such as writing to the Ombudsmen or us. We are therefore increasingly being asked to examine questions of legislative compliance in what are often very complex circumstances.

To date, we have attempted to get the most out of our resources for inquiries by improving and formalising our inquiry processes. Many requests can be responded to in a reasonably straightforward way. We do also reserve the right to decide the level of inquiry that is warranted in each case. Factors we consider include whether the Auditor-General is the appropriate authority to consider the issues, whether we have the resources to do so, and the seriousness of the issues raised.

However, we are aware that our need to manage our resources in this way risks frustrating the expectations of those people who seek our involvement as a means of holding public entities to account.

Integrating inquiries with our other types of audit

Our strategy indicates our desire to better manage the information we have about public entity and sector risks by integrating the Office’s discretionary reporting with annual audits. We can use inquiries to investigate in greater depth issues that are not directly relevant to the matters on which the annual audit must provide an opinion. In this regard, we sometimes carry out inquiries that use performance audit disciplines to explore an issue. We can also use annual audits and performance audits to follow up across a sector on issues that have emerged through a particular inquiry or from a pattern of inquiry requests.

During 2009-12, we intend to:

• continue to explore ways in which we can streamline our inquiry processes to improve their effectiveness and efficiency, and to ensure that we apply our resources appropriately to the range of competing issues being raised with us;
• continue to build links between the various streams of our work to increase our ability to explore issues of emerging significance and to provide appropriate and targeted assurance to Parliament and the public on them; and
• consider whether the amount we spend on inquiries is adequate to provide the assurance expected by Parliament and the public, and whether we may need additional funding for inquiries in future.

Supporting accountability to Parliament

Advice to, and liaison with, central agencies, individual public entities, the public sector, and other sector groups is an integral part of our presence and involvement in the public sector. We see our level of involvement in this area remaining at similar levels. However, we intend to change the nature of our reporting and advice to better support accountability to Parliament.

We will do this by focusing on a broader view of public entity risk as part of the annual audits, and by using the full range of our resources to identify and address issues and risks. An example is our recent work on procurement.

Responding to requests for more advice

The Auditor-General’s annual work programme contains commitments to carry out performance audits and report on these to Parliament. However, the public entities we audit want more from us than formal reports that they can apply to their particular circumstances. They, and agencies with co-ordination responsibilities, want to get our advice on initiatives that they are proposing and how they can ensure that they do the right thing.

We consider that responding to these expectations will help us to ensure that our work generates greater insight and value. However, we are aware that:

• our expertise lies in areas at the core of auditing such as governance, accountability, and public administration, and that we must be careful to participate in such work only to the extent that our expertise allows; and
• our independence is our strongest asset. Therefore, we must remain within our proper role as the public sector’s auditor – reporting to those properly responsible for decisions about policies, governance, and management.

Our finances

It is important that we maximise the value of all the work that we do. Funding for the Office of the Auditor-General is constrained, and we are under pressure to contain the level of annual audit fees. The funding sources available to the Auditor-General are:

• fees for annual audits, paid by each public entity (other than cemetery trusts and a few other very small public entities whose audits are funded by Parliamentary appropriation to the Auditor-General), which accounted for 86% of the total of Vote Audit in 2007/08; and
• limited funding from Parliament for discretionary work, which amounted to $9.75 million in 2008/09 – about 13% of the total Vote Audit. This funding is used for work other than the annual audits – for example, performance audits, inquiries, and the publication of good practice guides.

Annual audit fees

Our 2004-09 Strategic Plan anticipated that we would adjust annual audits to carry out significantly more work in the area of non-financial reporting, and to improve the level of work done in the areas of waste, probity, governance, and accountability. This strategic intention reflected the changes to the statutory public accountability arrangements from 2002-04 that increased performance reporting requirements for many public entities, and our audit responsibilities.

The Auditor-General appoints auditors to carry out the annual audits of public entities from a pool of 54 audit service providers. This pool includes Audit New Zealand and private sector accounting firms, ranging from the four major chartered accountancy firms to sole practitioners. Most audits are allocated directly to an auditor, but a few auditors are appointed to an audit after a competitive tender.

When we were preparing the 2004-09 Strategic Plan, our analysis clearly showed that the previous contestability model that required audit service providers to compete for public sector audits:

• did not give audit service providers enough work to justify their investment in knowledge about sectors of public entities, or to justify their effort to stay abreast of changes in the public sector environment;
• did not allow joint development work to deal with the changing public sector environment; and
• had resulted in high process costs and tension between downward price pressure and audit scope expectations, with some evidence of market distortion and failure, including predatory pricing.

As a result, audit fees were increasingly not covering the costs of audit work, including work to address wider public interests in the effectiveness and efficiency of public services and to carry out our statutory duty to report on performance information.

Continuing pressure on audit fees

Since 2004, we have worked extensively to get public audit fees on to a viable financial footing, while ensuring that audit work complies with changing financial reporting and auditing standards. Despite this, wider international market demand factors in the wake of the Sarbanes Oxley response, the post-Enron environment, and the effect of introducing NZ IFRS have increased audit effort, while qualified auditors have remained a scarce resource.

We expect continued pressure on audit fees. Some commentators’ projections suggest that there will be increases of 5% a year in audit costs as a result of rising wages and other costs. The international economic conditions may reduce these projections somewhat.

The transition to NZ IFRS during 2004-09 has created more audit work and higher audit fees, mostly driven by compliance and activity levels. We have been publicly noting our concerns about the introduction of NZ IFRS and the effect on the public sector for some time. We will continue to highlight the issues and implications, and suggest other options.

Our objective is to ensure that audit fees are fair to the public entities subject to audit and provide a fair return to auditors for the work they must do to meet the Auditor-General’s auditing standards. However, this focus has meant that we have made only limited progress to get annual audits to address the effectiveness and efficiency of public services, including our statutory duty to report on performance information.

Meeting all the standards and requirements

We aim to bring a greater focus on risk and differentiate the way we work to manage the size of audit fees for smaller public entities. However, we must also perform audits that meet professional standards and statutory requirements. Accountability requirements, including those for the audit, and associated fees are often a burden for smaller public entities. This leads us to question whether it is timely to ask if a more differentiated model of accountability for public entities is justified.

For larger and more complex public entities where our annual audit work must include attesting to service performance information, we anticipate some fee increases as a result of the way we intend to improve carrying out this work. We have been concerned that our current audit work to attest to service performance does not address statutory intentions, particularly those arising from the legislative changes in 2002-04. Our strengthened approach to attesting to service performance information will increase audit fees. We intend to try and limit these fee increases for public entities during 2009-12.

Discretionary auditing and reporting products

Our strategy proposes to focus our discretionary work more on addressing risks identified in annual audit work that are not appropriately dealt with by the annual audit. This may be because these risks are not specifically relevant to the matters on which the annual audit must provide an opinion or because they relate to groups of public entities or public sector-wide issues. We are not yet certain how this approach might change the focus and extent of our discretionary reporting, but note again that, relative to our international counterparts, we audit a very large number of public entities and have comparatively very limited discretionary resources to carry out in-depth audit work.

During 2009-12, we will be considering whether our discretionary resource is adequate to provide the assurance expected by Parliament and the public, and whether we may need additional funding for inquiry and performance audit work in future.

Our processes

We depend on information technology to carry out our work, and we need systems to manage the 4000 or so audits that we are responsible for. During 2007/08, we invested in the redevelopment of the core system we use to manage the allocation and tracking of annual audits. The new system has considerably improved functionality. We also depend on high quality information from all our audit service providers about annual audit risk assessments. We will need to invest major effort in developing risk assessment and knowledge management tools and processes during 2009-12.

Risk assessment

Improved risk assessment tools and processes are the fundamental building blocks for us to better understand the objectives and operating environments of public entities, so that our annual audit work can be based on a broader view of public entity risk.

We have already started work on a number of initiatives in this area, and have more planned. We are also aligning contracts with our audit service providers within particular sectors. This alignment is to allow development of a long-term outlook for annual audit work in any given sector, and a clearer basis for expectations about the development of sector expertise, liaison, and communication responsibilities among auditors.

Knowledge management

We need to invest in knowledge management techniques, tools, and processes to aggregate identified risks and issues (from annual audits and our other discretionary work) to assess their pervasiveness and effect, and to identify appropriate responses. Such analysis and evaluation of risk information is intended to improve the use of our full range of resources to identify and address issues and risks within public entities and the public sector.

We will also need to develop better knowledge management techniques, tools, and processes for managing information about action taken on risks. Issues identified in annual audits are carried over to successive years of audit planning until the auditor is satisfied that the issues are satisfactorily resolved. We intend to build on the way that we identify issues in our work, and how we report to public entities or others involved in management and governance so that issues are satisfactorily resolved or escalated to others with relevant responsibilities.

We intend to explore a range of internal efficiencies so that we can free up resources and focus more on public entities and sectors of greater public interest and risk. These efficiencies include:

• improved risk assessment and prioritising of annual audit efforts across the range of public entities and sectors within the public sector;
• better integrating annual audit work with performance audits and other reporting funded by Parliament;
• better aligning existing annual audit work with other areas of public-interest audit work (while still meeting professional standards and delivering quality audits); and
• aligning three-year sector plans and contracts with audit service providers to sectors of public entities, to provide a stable basis for audit service providers to invest in sector knowledge and to share information and collaborate to address audit issues and risks.

Working with other audit service providers

With an operating model that uses a range of audit service providers and staff in two business units to deliver our range of audit products, we need to ensure that we share knowledge about:

• public entities – their purposes and obligations, their operating contexts, and their risks and issues;
• how we can carry out our audit work efficiently while meeting our professional and statutory obligations, and providing the maximum assurance value to stakeholders; and
• how we can use our audit responses to help identify issues and risks, and to help public entities and the public sector address risks and identify improvement opportunities.

We intend to build on the collaborative work that has been taking place between our audit service providers in the past few years. This has been possible because of the move from competing for audit contracts to an allocation approach.

Our risk management framework

Our Strategy 2009-12 will place significant demands on our people, capability, and resources during the next three years. This strategy will test our ability to build relationships and communicate to public entities and Parliament about the focus of our work and the benefits they may expect to see as a result. In particular, we will be tested in the wider context of financial constraint for public entities and increasing pressure on audit and assurance costs. Our strategy therefore proposes incremental movement toward providing greater insight and value from the work we do, to allow for adjustment and learning on our own part and on that of public entities.

Our risk management framework helps us to identify and manage risk. The framework is aligned to our business outcomes and the strategies designed to achieve these outcomes.

Risk identification and management is an important part of our annual planning. Our strategic audit planning defines plans and allocates resources to achieve objectives. An integral part of that process is identifying anything that threatens our ability to achieve those objectives.

We have categorised the risks that we are exposed to as strategic, professional, operational, and business operational risks. We manage all risks within the same framework, as experience shows that inadequately managed professional, operational, and business operational risks can escalate to the level of strategic risk.

Strategic risks

Identifying and managing risk is integral to our business. In our view, we face four ongoing strategic risks that will always be present, although much of the work we do helps to mitigate them. In addition, we have identified two risks that relate more specifically to the period of our strategy from 2009 to 2012.

Ongoing strategic risks

• Loss of independence – independence underpins the value of the Auditor-General’s products. Losing that independence in fact or appearance, whether by failure on the part of the Auditor-General or his appointed auditors to act independently or otherwise, would undermine trust in our organisation.
• Audit failure – the risk that we issue an incorrect audit opinion with material impact, or a report that is significantly wrong in nature or process.
• Loss of capability – the risk that we are unable to retain, recruit, or access people with the technical and other skills our audit work requires.
• Loss of reputation – the risk that we may lose reputation or credibility that affects our ability to maintain effective relationships with stakeholders.

Mitigation actions

Our main mitigation actions for the ongoing strategic risks are:

• the Auditor-General’s independence standards – the Auditor-General sets a high standard for independence for his employees and the other auditors he appoints;
• monitoring the independence of the two statutory officers, employees, and appointed auditors – the system includes regular declarations of interest and, where necessary, implementing measures to avoid conflicts of interest;
• adhering to professional auditing standards and supplementing such standards with the Auditor-General’s auditing standards;
• quality assurance regimes, including implementing and complying with revised quality control standards from the New Zealand Institute of Chartered Accountants;
• peer review and substantiation procedures – these include annual independent evaluation of our audit allocation and tendering processes, independent external review of two performance audits each year, and client and stakeholder feedback studies;
• an independent Audit and Risk Committee, comprising three external members and the Deputy Controller and Auditor-General; and
• ongoing training and development of our staff – including talent and capability management programmes, leadership development initiatives, and professional development programmes.

Overall, we are effectively managing our ongoing strategic risks. This view is based on our ongoing monitoring and the results of our international peer review conducted in late 2007. The review team made only minor suggestions for improvement, most of which we are adopting.

Strategic risks in 2009-12

• Support from Parliament and others – the risk that we will not meet all expectations. As the Auditor-General’s discretionary mandate is broad, it is inevitable that we will not meet all expectations. That is why our strategy is based on providing greater clarity about what we are focusing on and why. However, with more than 87% of the Office’s expenditure on annual audits, for which requirements are set by statute and professional standards, achieving our strategy also depends on the willingness of Parliament:
  • and others to rigorously explore opportunities for a more differentiated model of accountability for public entities and to act to realise reduced audit and compliance costs where appropriate; and
  • to consider questions about the balance of funding available to the Office for discretionary products to allow us to conduct a greater range of work in the public interest – such as performance audits and other studies, inquiries, and supporting accountability to Parliament.
• Leadership transition – the risk of a loss of focus or direction resulting from uncertainty during the transition of leadership of the Auditor-General and the Executive Director of Audit New Zealand. Our Strategy 2009-12 was being developed as a new Executive Director, Mr Stephen (Steve) Walker, was appointed and took up his position in January 2009. The term of the incumbent Auditor-General Mr Kevin Brady ends in July 2009. Mr Brady has been clear that, while an incoming Auditor-General will bring their own priorities to the job, it is important for us to prepare the strategy for 2009-12 to ensure that the Office’s current intentions and position are clearly laid out for the new Auditor-General to consider. The current Deputy Auditor-General’s term runs to mid-2010, providing a clear link in the transition between the incoming and outgoing Auditors-General.

Our people

The Auditor-General’s staff are organised into two business units, with shared corporate services:

• Audit New Zealand is the operating arm, and carries out annual audits allocated by the Auditor-General. It also provides other assurance services to public entities within the Auditor-General’s mandate and in keeping with the Auditor-General’s auditing standard on the independence of auditors.
• The Office of the Auditor-General carries out strategic audit planning, sets policy and standards, appoints auditors and oversees their performance, carries out performance audits, inquiries, and other special studies, and provides reports and advice to Parliament.

We rely entirely on our people and their collective skills, experience, knowledge, and culture to deliver the outputs mandated by our governing legislation. To achieve our Strategy 2009-12, we need to recruit, train, develop, and retain the best people so that our work meets and exceeds the very high standards we set. We will continue to take account of:

• changes in the market for accounting and auditing staff;
• wider skill requirements for public sector audits; and
• employee engagement.

Changes in the market for accounting and auditing staff

Audit New Zealand operates most effectively with a mix of senior and junior staff. Many of our auditors start their career with us as a graduate. We visit most universities in New Zealand every year, seeking high quality accounting students in their third or final year of study. We put all graduate candidates through an extensive evaluation process, and those that meet our requirements are offered internships or graduate roles. Interns who show promise and are keen to join us are offered positions to start with us after they graduate.

Our young staff are encouraged to become professionally qualified as chartered accountants through the New Zealand Institute of Chartered Accountants, and they generally achieve this in their third year of working with us. At this time, they have many exciting career opportunities ahead of them – in finance or accounting roles in New Zealand and overseas. Traditionally, Audit New Zealand has lost a lot of staff at this point (year 4 and 5) in their career.

The changing economic conditions, combined with changing immigration rules by countries such as the United Kingdom, are making many newly qualified people think more about their options, and as a result turnover is starting to slow. This is providing us with a large number of business benefits, such as greater continuity with clients and within audit teams.

Historically, because people leave after qualifying we have had to recruit qualified and experienced staff from the accounting and auditing profession so that we maintain the capability and capacity we need at senior levels. Our endeavours in the last couple of years have been very successful, and Audit New Zealand is now well staffed at all levels.

It is too early to tell if this new state will continue. The attraction of overseas travel will remain for many, and our staff are likely to continue to be in demand in the global market because of their experience from the introduction of International Financial Reporting Standards in our public sector.

We will continue to supplement our staff with secondments from within New Zealand and internationally to help us through peak auditing periods.

Wider skill requirements for public sector audits

The professional training of auditors is oriented toward financial statements. For us to carry out our public sector role of auditing non-financial, waste, probity and accountability areas, we need to develop a wider range of skills in our annual audit staff. We already have staff who carry out performance audits, inquiries, and other assurance services and who have expertise in important areas of governance, accountability, and public administration. These areas include procurement, funds management, grants administration, debt management, asset management, defence acquisitions, transport safety, and strategy implementation. During 2009-12, we will need to get better at transferring what we learn from our performance audits, inquiries, and other assurance services into our annual audits.

Employee engagement

Our employee engagement and satisfaction survey results are broadly on a par with other State sector organisations, although they are also generally below the average for employees in New Zealand as a whole. In the context of our wider strategy and the general environment within which we operate, we consider it desirable and beneficial to improve employee engagement and satisfaction across the board. We intend to focus on:

• how our staff identify with and understand our values of integrity, honesty, and independence, as these are the cornerstone of our ability to provide the assurance required by Parliament and the public;
• continuing to strengthen our expertise in areas central to our role as the public sector’s auditor of governance, accountability, and public administration, and to generally broaden the familiarity of our auditors in assessing and making judgements about these areas in annual audit work; and
• continuing to invest in developing our staff. This continues to be vital in the domestic and international labour market for auditing and assurance professionals. Being a knowledge industry, our ability to retain knowledge and expertise is as important as recruiting new people and skills. Professional development will therefore continue to have a very high priority. We aim to continue to improve the overall skill, leadership capability, and experience level of staff. This will include the further development of high-potential and talent management programmes, as a way of improving staff retention and to broaden the skills of our current and future leaders.

2: Parliament also provides $150,000 toward the cost of auditing very small entities such as cemetery trusts and reserve boards, acknowledging that many of these entities do not generate enough revenue to enable them to pay audit fees.