7. Suggestions for Improvement

The following are the main suggestions for improvement in the context of the three broad areas in which the report has been structured. The Auditor-General’s response to each suggestion is set out in the box which follows it.

7.1 Governance and Management

7.1.1
A task force should be established to carry out planning and preparatory work on the proposed move to a new building housing both the Office of the Auditor-General and Audit New Zealand Business Units. Adequate funding needs to be provided for the move. Regular communication with, and involvement of, all those affected will be important for a successful outcome.

7.1.2
It is suggested that consideration be given to having a performance audit undertaken of the Office by the External Auditor in the next year.

7.1.3
High priority should be given to the completion and rolling out of the organisation’s risk management policy and updated business continuity plan in the current financial year.

7.1.4
The leadership teams should maintain a strong focus on the implementation of a knowledge management system that will meet the needs of the Office of the Auditor-General and Audit New Zealand.

7.1.5
Close attention should be paid to resourcing the Research and Development function at a level capable of supporting the strategic decision-making critical to the credibility and effectiveness of the organisation, as well as to its ability to respond appropriately to a fast-changing environment.

7.1.6
The Office of the Auditor-General and senior Parliamentary Services managers should continue their efforts to strengthen the relationship between the Office of the Auditor- General, the Officers of Parliament Committee and key parliamentary Select Committees.

7.2 Financial Statements and Assurance Auditing

7.2.1
The retention and recruitment of a small number of key staff is a risk that needs to be specifically covered in the Risk Management Plan for the Office.

7.2.2
The direction, scope and breadth of the enhanced financial statements audit in the public sector should be evaluated as a matter of priority by the Office of the Auditor-General in relation to its own performance and for the information of its stakeholders, particularly Parliament.

7.2.3
The Office of the Auditor-General should address the issue of public sector entities having the same Audit Service Provider for periods approaching, and exceeding, twelve years in the interests of preserving audit independence and maintaining the efficiency and effectiveness of the entities concerned.

7.2.4
It is suggested that, in the selection of Appointed Auditors, the assessments against each selection criterion should be documented and summarised in the relevant submission to the Auditor-General.

7.2.5
It would be prudent for the Office of the Auditor-General to minimize the risks associated with being seen not to comply with the main requirements of the government’s procurement policy.

7.2.6
The desirability of merging at least some of the technical resources of Audit New Zealand and those of the Office of the Auditor-General should be further investigated for better operational effectiveness and efficiency, particularly where the skills involved are difficult to recruit and retain.

7.2.7
The structure of audit operations in Audit New Zealand could be more efficient if audit responsibilities were assigned in a manner that would permit greater specialisation amongst the Directors and staff and if any duplication between Audit New Zealand and the Office of the Auditor-General were reduced. The result would most likely be greater economies of scale, greater efficiencies in the performance of the audit work and improved identification of audit issues.

7.2.8
Although the Audit New Zealand Quality Control Manual includes a wide range of policies and follows the recently implemented international standard on quality control, it does not provide sufficient information with respect to policies surrounding recruitment, performance evaluation, career development, promotion, and auditor rotation. During interviews, it was evident that such information exists but it is not part of the Quality Control Manual that can be easily accessed. This is a matter that requires attention.

7.2.9
While it is noted that Audit New Zealand has appropriate audit tools and audit methodology to conduct quality audits and that staff are more focussed on their role, more effort is required to ensure that Audit New Zealand executes its new methodology and policies in a manner that will continue to deliver high quality professional services and adapt to the international changes in the accounting and auditing profession, In the opinion of the Peer Review Team, the response to these challenges should be for Audit New Zealand to continue its efforts to train all of its staff in the elements of the new audit methodology and practices but to also hold separate in-depth training on key elements of that methodology and separate training sessions customised and targeted for senior staff.

7.2.10
It is incumbent on the Office of the Auditor-General to ensure it remains independent of implementation issues related to local government to retain its objectivity and cautious scepticism as part of audit responsibilities and also be seen to be doing so.

7.2.11
The Office of the Auditor-General is strongly encouraged to address comprehensively the full range of issues emerging from the recent quality assurance review covering the LTCCP.

7.3 Performance Auditing, Good Practice Guides and Inquiries

7.3.1.
The Office of the Auditor-General should consult with the Officers of Parliament Committee and the Finance and Expenditure Committee to determine the value they would see in a more proactive discussion on the Office’s draft performance audit work programme. This would include commenting on the reasons for specific proposals for performance audits or studies not being included in the final programme.

7.3.2.
The Office of the Auditor-General may wish to discuss with heads of major public entities how the existing consultation arrangements on the Office’s performance audit work programme might be further developed and refined; and, where a performance audit is pursued, whether there would be merit in more direct contact with the relevant Chief Executive during the key design and scoping stages of the audit.

7.3.3.
The Office of the Auditor-General should undertake an analysis of Post Project Reviews covering performance audit reports published in 2007-08 to determine how the closer involvement of performance audit teams with the scoping of performance audits has paid dividends. The Office of the Auditor-General should also continue to explore new and innovative ways to get to the bottom of topics, such as making further use of “issue analysis” meetings, to make sure that it has full knowledge of entities’ plans and vice versa.

7.3.4.
Where an entity’s performance is assessed against internally set standards, there is a risk that performance audit reports may not encourage the stretching of performance. At the audit planning stage, the PAG should test to see whether the methodologies proposed for the audit will yield sufficient independent benchmarking, research and analysis to provide an objective assessment of the auditee’s activities and performance, including whether the immediate targets and standards that the audited body has set for itself are sufficiently challenging.

7.3.5.
The Office of the Auditor-General may wish to be more ready to offer an opinion on whether it considers that, where particular information is unavailable, the entity should have had that information available for analysis and decision-making.

7.3.6.
More financial analysis would be helpful in some reports, particularly those that examine particular programmes and initiatives.

7.3.7.
More quantification of the costs and benefits of government programmes would help to determine whether entities are choosing the most cost-effective means of achieving their objectives.

7.3.8.
The structure and content of reports could be altered to reduce descriptive content and give more prominence to key findings and analysis in direct support of recommendations.

7.3.9.
Reports could include more explicit explanation of their scope.

7.3.10.
In addition to recent new instructions to performance audit teams that recommendations should be significant and targeted, we would add that they should also be measurable: setting out wherever possible clear timescales for action by the entity, and by defining the criteria against which the impact of a recommendation should be assessed.

7.3.11.
With 14 performance audits to deliver in 2007-08 and a core audit staff of around 15, the Office of the Auditor-General might consider reviewing staffing levels for performance audits, looking in particular at continuity and at its capacity to do justice to the range and number of audits tackled each year

7.3.12.
The Office of the Auditor-General should investigate whether a better balance can be struck between the effort and resources committed to the conduct of a performance audit and that committed to its review.

7.3.13.
At present, much of the quality assurance effort is focussed towards the end of an audit or, indeed, after an audit report has been published. We consider that there would be merit in targeting more of this resource at earlier points in the audit lifecycle. This, we feel, could bring further depth and rigour to the scope and design of a performance audit and would provide a useful “challenge mechanism” to test the range of methodologies and approaches planned for an audit.

7.3.14.
There is scope to strengthen the processes for following up the recommendations made in performance audits, for example by public entities being invited to set out formally their immediate response to the Office of the Auditor-General’s recommendations, and at a later date, for the Auditor-General to review the steps they have taken to implement those recommendations. This would strengthen accountability by placing a clear obligation on public entities to take necessary action. It would also apply a discipline upon the Office of the Auditor-General’s performance audit teams to ensure their recommendations were practical and capable of implementation.

7.3.15.
There may be a case to enhance the annual Performance Audit Evaluation Report to the Officers of Parliament Committee, for example, by increasing the number of audits covered in the evaluation and, if the Committee so wished, for the Office of the Auditor-General to make a presentation to them in support of the Report.

7.3.16.
When preparing good practice guidance, the Office of the Auditor-General should consider whether such guidance, in some circumstances, would carry added weight and authority if it were jointly prepared and published with other bodies, including the Treasury, the State Services Commission, or the New Zealand Society of Local Government Managers.

7.3.17.
The Office of the Auditor-General may wish to develop the means to canvass a wider body of views concerning satisfaction with the handling of inquiries, and ask a wider set of questions about the quality of its inquiries work, in order to further develop and refine the inquiries process.

7.3.18.
Consideration should be given to strengthening areas of the Inquiries Manual, for example in respect of the need to establish early in an inquiry the expectations and benchmarks that determine the standards against which the actions of public entities are to be assessed.

7.3.19.
The Performance Audit Group should consider whether any topics for future audit lend themselves to an inquiry-style approach. By including some of these shorter studies, the Group would be able to offer a wider range of products and increase the flexibility of its approach.