Skip to content. | Skip to navigation.


Part 2: Government departments – results of the 2005/06 audits

Central government: Results of the 2005/06 audits.

In this Part, we report on the results of the 2005/06 audits of 39 government departments and two Offices of Parliament.1 Our purpose is to inform Parliament of the assurance given by the audits on:

  • the quality of financial reports; and
  • aspects of the financial and performance management of government departments.

Audit opinions issued

The Public Finance Act 1989 (PFA) sets out departments' responsibilities for general purpose financial reporting. Section 45 sets out the required contents of the annual report. Section 45A sets out the requirements for the statement of service performance and section 45B for the annual financial statements – two key statements within the annual report. Both statements need to be prepared in accordance with generally accepted accounting practice.2

Section 45D(2) of the PFA and section 15 of the Public Audit Act 2001 set out the responsibility of the Auditor-General to audit the annual financial statements, statement of service performance, and any other information that the Auditor- General has agreed to audit.

To form an audit opinion on the relevant sections of departments' annual reports, our audits are conducted in accordance with The Auditor-General's auditing standards,3 which incorporate the auditing standards issued by the New Zealand Institute of Chartered Accountants. The audits are planned and performed to gather all the information and explanations considered necessary to obtain reasonable assurance that the financial statements do not have material misstatements caused by fraud or error.

The audit also involves procedures to test the information presented in the financial statements. In forming our opinion, we assess the results of those procedures, and evaluate the overall adequacy of the presentation of information in the financial statements.

None of the 41 departments audited received an audit report containing a qualified audit opinion (see Figure 2.1).

Figure 2.1
Analysis of audit opinions from 2001/02 to 2005/06

Year ended 30 June20022003200420052006
Unqualified opinions4241404141
Qualified opinions1210 0
Total audit opinions issued4343414141

Financial and service performance management

As part of the audit, our auditors examine aspects of financial and service performance management. These are sometimes referred to as the "five management aspects" (see paragraphs 2.109 and 2.110). Where applicable, we identify specific areas of weakness, and make recommendations to eliminate those weaknesses.

In Part 3, we explain the changes to our reporting to Ministers and select committees that we are making from 2006/07. These changes mean that this is the last year that we will be reporting ratings for departments under the five management aspects. We have reported under the current framework for 13 years starting from 1993/94.

Financial management

We assess and report on the following aspects of financial management:

  • Financial control systems – the individual systems that process financial data – for example, processing of payments (expenditure and creditors). This covers controls surrounding the processing of these transactions to ensure that the data is complete and accurate.
  • Financial management information systems – the systems for recording, reporting, and protecting financial information. This includes the information systems and information technology (IS/IT) control environment, and, for example, IS/IT strategic planning, data integrity, access controls, and the physical security of hardware and software.
  • Financial management control environment – this covers management's attitude, policies, and practices for overseeing and controlling financial performance. It includes financial management policies and procedures, self-review procedures (including internal audit), and budgeting processes.

Service performance management

We assess and report on the following aspects of service performance management:

  • Service performance information systems – the systems to record service performance (non-financial) data, and the internal controls (manual and computer) to ensure that the data is complete and accurate.
  • Service performance management control environment – this covers the planning processes, the existence of quality assurance procedures, the adequacy of operational policies and procedures, and the extent to which selfreview of non-financial performance is taking place.

Figure 2.2
Our rating system for aspects of financial and service performance

Assessment termFurther explanation

Works very well. No scope for cost-beneficial improvement identified.

GoodWorks well; few or minor improvements only needed to rate as excellent. We would have recommended improvements only where benefits exceeded costs.
SatisfactoryWorks well enough, but improvements desirable. We would have recommended improvements (while having regard for costs and benefits) to be made during the coming year.
Just adequate Does work, but not at all well. We would have recommended improvements to be made as soon as possible.
Not adequateDoes not work; needs complete review. We would have recommended major improvements to be made urgently.
Not applicableNot examined or assessed. Comments should explain why.

Reporting of results

We report our assessment of certain aspects of financial and service performance management to the chief executive of, and to stakeholders (such as the responsible Minister and the select committee that conducts the financial review of the department) in, each department.

Departments vary greatly in size and organisational structure, and sometimes undergo restructuring. For these reasons, we advise all readers to exercise caution when comparing departments.

The results

We assessed financial and service performance management in each of the 41 departments. A summary of the assessments (205 in total – 5 for each department) is given in Figure 2.3.4

There were 67 (33%) assessments of "Excellent", and a combined total of 184 (90%) assessments were either "Excellent" or "Good". This compares with assessments of 35% and 88% respectively in the previous year.

No assessments of "Just adequate" or "Not adequate" have been issued in the past four years.

Figure 2.3
Summary of assessments of aspects of financial management and service performance management in departments for 2005/06

Aspect assessedExcellent
Just adequate
Not adequate

No. %No.%No.%No.% No.%No.
Totals 20066733117572110000

* The percentage figures add to 101% as a result of rounding.

FCS Financial control systems
FMIS Financial management information systems
FMCE Financial management control environment
SPIS Service performance information systems
SPMCE Service performance management control environment

We compared our assessments for 2005/06 with those for 2004/05. The results are summarised in Figure 2.4.

Figure 2.4
Assessment ratings for 2005/06 compared to 2004/05

Aspect assessedHigher ratingSame ratingLower ratingTotal
FCS 137341
SPIS 040141
%3%92%5% 100%

Figure 2.4 shows that:

  • a high proportion (92%) of ratings remained unchanged from the previous year;
  • seven ratings (3%) improved from the previous year; and
  • 10 ratings (5%) were lower than the previous year.

The proportion of departments assessed as "Excellent" or "Good" during the 13-year period that we have been reporting on the five management aspects is shown in Figure 2.5.

Figure 2.5
Percentage of "Excellent" and "Good" ratings from 1993/94 to 2005/06

Figure 2.5. 2.119
Figure 2.5 shows that the proportion of departments rated "Excellent" or "Good" has increased during the period. For those departments rated "Excellent" or "Good", the consistency between the individual aspects ratings has increased, as indicated by the narrowing of the spread between the individual aspects at the start and the end of the period.

The Service Performance Information Systems aspect has consistently had the lowest proportion of departments rating "Excellent" or "Good".

1: The 39 departments are those listed on page 102 of the Financial Statements of the Government of New Zealand for the Year Ended 30 June 2006, excluding the Government Communications Security Bureau and the Security Intelligence Service. The two Offices of Parliament included in the results are the Office of the Ombudsmen and the Parliamentary Commissioner for the Environment. For the purposes of this Part, our use of the term "departments" includes these two Offices of Parliament.

2: Generally accepted accounting practice is defined in section 2(1) of the Public Finance Act 1989.

3: ISBN 0-478-18131-0, May 2005.

4: For two departments, we have issued separate additional ratings for aspects relating to non-departmental performance. These additional ratings are excluded from this analysis.

page top
Report details

CoverCentral government: Results of the 2005/06 audits

ISBN 0-478-18174-4