Our report Observations from our central government audits: 2021/22 was presented to the House of Representatives today.

We continue to be concerned that the way public organisations report on their spending and performance does not answer the questions that Parliament and the public are most interested in. The Parliamentary Commissioner for the Environment and the Productivity Commission have recently raised similar concerns.

Improvements are especially needed at the whole-of-government level, for cross-agency work, and for reporting on major initiatives or funds. We are pleased to see some progress on improved system-level reporting and accountability over the past year, including through the Covid Response and Recovery Fund and the Climate Emergency Response Fund.

We also acknowledge efforts to improve cross-agency collaboration on complex, often long-standing, issues through new arrangements like interdepartmental executive boards. However, it is too often left for Parliament and the public to try to piece together information to answer questions of public accountability and to understand what has been spent and achieved as a result.

Recent reform of public service legislation enables public agencies to work in new ways. In our view, reform is now required of the Public Finance Act to ensure that the public sector meets the accountability requirements of a 21st century New Zealand. This will not be a small task, but given the importance of public trust in government, it is, in our view, an urgent and critical one.

The Auditor-General issued an unmodified audit opinion on the Financial Statements of the Government of New Zealand. This means that, in his view, the financial statements fairly reflected the government’s financial position as at 30 June 2022. Our audit report on these financial statements noted several key matters. Among them was reporting on the Government’s climate change commitments, and matters relating to the Holidays Act 2003. The provision for employee entitlements in the Government’s financial statements includes $2.1 billion for amounts owing to employees who have been paid less than their legal entitlements under the Holidays Act 2003. This includes $1.7 billion owing to employees of the former district health boards. Resolving this issue requires strong central agency leadership.

The Government’s financial statements report a historically low number of instances of unappropriated expenditure for 2021/22. However, a greater concern is when unlawful payments have been made over long periods and, when discovered, are not immediately corrected, as we saw with the Ministry of Social Development’s application of payment criteria for the Accommodation Supplement.

A media kit, epub, and two-page summary are also available for this report.

Insights into local government: 2021

Our report Insights into local government: 2021 was presented to the House of Representatives today.

For councils, 2020/21 was a challenging year. The Covid-19 pandemic, and several reform proposals affecting the local government sector, added pressure to councils at a time when nationwide skills shortages, higher staff turnover, and increased recruitment costs made delivering services more challenging.

We are encouraged by the progress the sector made in 2020/21. Councils and their staff should be commended for maintaining services in such a challenging environment.

Councils continued to invest in their infrastructure in 2020/21, delivering the highest capital expenditure programme for nine years. In response to historical underinvestment in their infrastructure assets, councils are also increasing their renewals expenditure when compared to depreciation expense.

Despite increased investment in water infrastructure, we have not yet seen an improvement in reported performance. The lowest performance was for the “safety of drinking water” measures. It is important to note that where drinking water measures are “not achieved”, this non-compliance does not necessarily mean there is an issue with water quality. We encourage councils to investigate the reasons for their non-compliance and prioritise remedial actions.

Effective governance of councils remains vital, as does the integrity of councillors and staff. In this regard, we are pleased to see continued effort by councils to enhance the effectiveness of audit and risk committees, in part by increasingly appointing independent chairpersons and members to these committees.

The global auditor shortage, and delays caused by Covid-19, continued to provide challenges for councils and our auditors in 2020/21. Despite this, most councils completed their audits by the extended statutory deadline of 31 December 2021. Twelve councils completed their audits late and two are yet to be completed.

Six councils received qualified audit opinions on their financial statements, and there were 19 qualifications on aspects of councils’ performance information, such as inaccuracies in the calculation of customer complaint information. In all instances, the qualification was limited to a disagreement or limitation of scope about a specific aspect of the annual report. Given its significance, we also drew attention in our audit reports to uncertainties arising from the Three Waters Reform Programme.

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