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Auditor-General's overview

Central government: Results of the 2017/18 audits

The Financial Statements of the Government of New Zealand for the year ended 30 June 2018 (the Government's financial statements) are important for New Zealanders and New Zealand.

They tell a story about what the Government is doing with the money it earns and borrows to deliver the services and investments that support us as individuals and as a nation. Behind the numbers are the things that make a difference in all our lives – hospitals, schools, the highways we drive on, and the taxes we pay. This year, they even tell you that lottery prize payments have gone up – although individually, we might not always feel that they have.

As a nation we should be proud that successive governments have seen transparency and high-quality financial reporting as one of the cornerstones of our financial management system. Globally, the level of reporting and scrutiny that these financial statements show is still rare. We risk taking this for granted but these financial statements are part of what supports the high-integrity and high-trust public sector that we all benefit from. The Government's financial statements are important and we can be proud as New Zealanders of the form they take and that, in many ways, they remain world leading.1

This is no small achievement. There are complex and sophisticated judgements required in preparing the Government's financial statements. I would like to acknowledge the work of those involved throughout the public sector and, in particular, in the Treasury for their ambition for, and their continued development of, financial reporting.

I am therefore pleased to have issued an unmodified audit opinion on the Government's financial statements. In short, that means that I can assure Parliament that they fairly reflect the Government's financial performance and position.

I am highlighting in Part 2 of this report what we describe as "key audit matters". When I provide assurance that the estimates behind tax revenue are reasonable, it matters because it means we can tell whether the Government has the money to pay for its spending. When our audit talks about Holidays Act 2003 liabilities, my ultimate interest is not only about the accounting treatment but that public servants, past and present, have been paid correctly for their work.

Of course with a complex set of financial statements there will always be aspects we could improve. State highway valuations are an example of this. The valuation of the state highway network matters – we enjoy the benefits of travelling on it and it contributes significant value to New Zealand. It is important to understand what it would cost to replace, whether it is being invested in, and how it is performing. The quality of the information used in preparing this valuation has been extensively reviewed this year, resulting in an improved valuation and better disclosure of the assumptions that underpin it. New Zealanders then also want to know whether any performance problems affecting the state highway network are being fixed. This makes it important to think about how best to report on financial matters and the actual performance of services and infrastructure.

I would like the story of how the Government is performing to be told more clearly and vividly in the future. Doing so would support New Zealanders in better understanding, and interrogating, government performance. As Part 1 explains, work is progressing on the Treasury's Living Standards Framework and an associated set of wellbeing indicators (Living Standards Framework Dashboard). I am encouraged by the developments I am seeing, and I will continue to discuss with the Treasury how reporting can be relevant to New Zealanders and tell the story about the performance of services that matter to each of us.

An important aspect of my role as Controller and Auditor-General is the Controller function. This function exists to support the fundamental principle of Parliamentary control over government expenditure. For those not familiar with the function, Part 3 briefly explains the role of the Controller and the context of the function.

In Part 3, I also outline my findings from 2017/18. On a positive note, the number of incidences of unappropriated expenditure has, overall, been going down since 2009/10. However, there were 18 reported instances of unappropriated expenditure in 2017/18.

I would like to emphasise that the unappropriated expenditure during 2017/18 tended to be technical in nature. We highlight in Part 3 several instances where spending beyond the appropriation limits appears to have been unavoidable. However, in other instances, departments could have avoided the situation with better planning and management. I expect government departments to be more careful in managing their appropriations, anticipating when authority for additional spending needs to be sought and gaining that authority in time to avoid unappropriated spending.

This might sound like much ado about a bureaucratic process. However, the principle is fundamental. Parliament is elected by all of us. It authorises the Government's spending. Public organisations ought to put considerable effort into getting appropriation management right.

Finally, I wish to again thank all those involved in preparing and auditing the Government's financial statements. They are a significant and important contribution to the financial management system of our country.

 

John Ryan
Controller and Auditor-General

3 December 2018


1: The Economist (October 20, 2018), "Large economic gains can come from mundane improvements in policy", page 16. The article recognised New Zealand as the only country with public-sector accounting that is up to scratch.

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CoverCentral government: Results of the 2017/18 audits

ISBN 978-0-478-44296-0