Making sure that the financial statements add up is important – but surely there is more value in public auditing than that? We did some poking around and discovered that there has been very little written about the value of public audit. So we thought we should attempt to better understand the relevance and importance of public auditing to those who rely on our work, such as Parliament and the public. Finding the answer would also guide us in shaping the future of public auditing to help meet our Greatest Imaginable Challenge – using our influence to ensure that by 2025, the public sector is operating and accountable in ways that will meet your needs in the second quarter of the 21st century.

We commissioned some researchers at Victoria University of Wellington to help us look at the value of auditing in the public sector. You can read more about how they carried out this research on our website.

So what did they find? Well, their research showed that the value of public auditing depended on the perspective of the user. In other words, the value of public audit is in the eye of the beholder, so to speak. The researchers discovered six main explanations for the value of public audit:

• The agency (or monitoring) explanation – auditing is valuable because it reduces agency costs. In the public sector, citizens have entrusted assets to the government. The cost for an individual to monitor the use of resources by the government would be too high, and the potential gain too low. Therefore, appointing an auditor helps to reduce the monitoring cost for everybody and ensures the proper use of public resources.
• The signalling explanation – auditing is a way for the government to signal that it is a reliable manager of resources. The government has an interest in ensuring that it is credible when it makes statements about public expenditure or public assets, and that when it makes decisions it is using reliable information. Ensuring that there is a credible independent audit body helps it to do so.
• Governance – auditing is an important part of governance. Without auditing, it would be much harder for good governance to take place. Auditing assists governors by providing assurance over the reliability of the financial statements and bringing issues to their attention. The function of external auditing is complementary to other forms of governance, such as internal audits and audit committees.
• The management control explanation – auditing can help managers run large, complex entities. An audit of a public sector entity is not primarily intended to provide information for an entity’s senior management. However, an audit can provide them with some assurance about what is going on in the remote corners of their entity. Auditing also includes recommendations to help with systems and reporting, and could improve management’s reputation.
• The insurance explanation – auditing in the public sector can provide “political insurance” where government can deflect attention on to auditors when there are failings by public sector managers (insurance over financial statements or decisions by managers is not the intended purpose of auditing in the public sector, but auditing may be valued for that reason).
• The confirmation hypothesis – public sector announcements will be initially accepted by the public at face value. However, the announcements will need to be eventually audited to confirm to the public that the information was reliable.

This, of course, is just a short summary of the findings of what is some very thorough research. If you want to take a deeper dive, you can find the four papers produced by the researchers on Victoria University’s website.

We have also been thinking about how we make our work even more useful and relevant to New Zealanders. We’d like to hear any suggestions you might have on how we can do this in the comments section below.

In the afternoon, I would get the savings book back with the deposit amount and account balance handwritten in.

A lot has changed since then. I can now do all my banking without ever visiting a bank branch by using online banking or an app on my cellphone. I can check my balance whenever I want, which also means my wife can see what I’ve put on the credit card as soon as I’ve used it! Technology is changing the way that services are being delivered, and with that comes a change in peoples’ expectations.

Organisations in both central and local government are trying to make it easier for people to access and use their services by making them more customer-centred. For example, there are two Better Public Services targets focused on improving peoples’ interaction with government. In most cases, this involves allowing people to access and use services online.

We’ve previously published some reports about how some public entities improved their services by putting them online, including Immigration New Zealand: Delivering transformational change, Inland Revenue Department: Governance of the Business Transformation programme, and Ministry of Health: Supporting the implementation of patient portals (my colleague Joy has written a blog post about this last report). These reports include some handy information for organisations to consider when planning to invest in information and technology systems to improve how they deliver services. We are also doing some further work on this topic.

Auckland Council is going through a similar transition to make it easier for customers to access and use its services online. The Council is doing this through something called the ‘Customer-centric Transformation Programme’ (now called the Digital and Transformation programme).

As part of our regular reviews of the Council’s service performance, we've published a report titled Auckland Council: Working to provide customer-centred services online. This report looks at the Council's programme and two projects under it: Identity Management, and the Licensing and Compliance Services Smart Forms project. The purpose of the Identity Management project was to make it possible for customers to sign in to all Council services using a single login account. Historically, each service was set up differently so customers had different accounts to carry out different tasks.

The aim of the Smart Forms project was to put 21 of the Council’s Licensing and Compliance Services forms and payments options online, including dog, alcohol, food, and street trading licenses, and health and hygiene certificates. The project also aimed to make the Council’s forms easier to understand and use.

We found that how the Council managed the projects was consistent with the some of the elements of good practice we identified in our report Realising benefits from six public sector technology projects. One of the things that I found interesting about the programme was its use of a co-design methodology. This meant that customers and Council staff were both involved in the design process for each service. For me, the difference is instead of using customers and Council staff to just identify problems, the Council also involved these two groups in creating solutions. The benefit of this approach is that the final service or product is more likely to meet the needs of users and be more user-friendly.

With the projects now delivered, customers can use a single login to access all of the Council’s online services. The process for services has also been simplified – making registering a dog or applying for a licence to run a business quicker and easier. A good example is dog registrations and renewals, of which the Council receives more than 80,000 each year. Before the programme, to register your furry best friend you would have to either visit one of Auckland Council’s service centres or mail in your registration form. Now, these can be completed and paid online.

This is just the start for Auckland Council. It has a whole series of projects that it is planning to complete over the next two years to make its services more customer-friendly for Aucklanders.

Do you have any examples where public entities have made it easier for you to use and access services? We’d like to hear about your experiences in the comments section below.

We also encourage you to provide feedback to your council or other public entities about any problems you have in using and accessing their services. Without your feedback, they might not know that people find it difficult to use and access their services.

As part of its eHealth work programme, the Ministry of Health is looking at emerging technology, such as patient portals, to help people use health services more easily. Patient portals are secure websites that allow people to access their health information and interact with their doctor. Through patient portals, people can send secure messages to their doctor, order repeat prescriptions, and, in some patient portals, view lab results and doctors’ notes. Without the use of technology like this, general practices are at risk of being left behind.

Patient portals increase the options people have for consulting their GP by enabling them to do this online instead of through a traditional face-to-face consultation. This can be more convenient and efficient for them and their GP. Changing to meet modern requirements has the effect of ensuring that general practices remain relevant and sustainable.

Private companies develop and run patient portals, and primary health organisations (PHOs) and general practices buy access to them. To encourage uptake among practices and the public, the Ministry has been working with other organisations to support their implementation and we’ve published a report that looks at how well it’s done this. (Collaboration is something our Office encourages – check out this recent blog post about how local authorities are working with others to address water management challenges.)

Working effectively with the health sector helped the Ministry to identify and address reasons why some general practices were reluctant to implement patient portals. For example, concerns about the cost to implement patient portals or safety and privacy. Some of the Ministry’s initiatives to address doctors’ concerns included:

• providing some funding and financial advice;
• preparing guidelines to support PHOs and general practices;
• appointing eHealth ambassadors to raise awareness and interest among doctors and provide guidance and support to them; and
• running awareness campaigns for general practices and the general public.

This work has helped the number of general practices offering patient portals to people more than double since June 2015.

The number of people signing up for a patient portal at their general practice has also more than doubled since June 2016. There were 233,839 registrations between June 2016 and June this year, taking the total patient portal users to 407,049.

This increased uptake in the use of patient portals is an encouraging sign that people do want to change how they interact with their doctors and access their health information. Since starting our performance audit about patient portals, I’ve joined up. I really appreciate the convenience of ordering my repeat prescription and seeing my tests results online and being able to discuss matters with my doctor in a secure environment before deciding whether I need an appointment.

Through our work, we’re seeing many examples of how public organisations in both local and central government are using technology to deliver services to New Zealanders. We’ll be publishing some reports on this topic in the coming months, so keep an eye out for them.

What are some of the services that you access and use online? We’d like to hear about your experiences in the comments section below.

People often think that auditors are responsible for detecting fraud. But they aren’t – international standards about auditing are clear that finding fraud isn’t the auditor’s responsibility. The job of preventing and detecting fraud rests with the senior leadership team and, if there is one, the governing body:

The primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management. It is important that management, with the oversight of those charged with governance, place a strong emphasis on fraud prevention, which may reduce opportunities for fraud to take place, and fraud deterrence, which could persuade individuals not to commit fraud because of the likelihood of detection and punishment.

Auditing standard about fraud: ISA (NZ) 240

We’re increasingly seeing indicators that the risks of fraud in the public sector are getting higher.

Fraud causes all sorts of damage – not just financial, and not just on that organisation but on the wider public sector as well. So what do the leaders of an organisation need to do?

Check that the controls are still up to scratch

Every organisation ought to have strong and tested controls in place to manage their business well. We can help a little, here: if we audit the organisation, we’ll do some testing of the key controls during the audit and tell the organisation about any weaknesses that we see. But the vigilance and attention on those controls needs to come clearly from the governing body and leadership team.

What’s an example of a key control? Well, the most basic is that money doesn’t get paid without someone senior first approving the payment – and the person deciding who gets paid is not the person who signs the cheques. That sort of control is called a “separation of duties”.

In New Zealand’s public sector, most of the controls are pretty good, which is why those controls are the usual way that fraud gets picked up.

It’s a rapidly changing world. The controls that worked very well for the last five years might not be quite strong enough now. We expect people in leadership roles to be thinking about these sorts of matters and taking action – controls need to stay relevant and effective, which means reviewing and testing them, and strengthening them where need be.

Get the culture right

Preventing fraud can’t ever be just about the systems and controls, because determined people will always find a way around them. We produced a series of reports in 2011 and 2012 about fraud, based on a big survey we commissioned. Back then, we said that the culture of an organisation is hugely important:

Building a culture where governance, management, and staff are receptive to talking about fraud is important. Our findings suggest that the incidence of fraud is lowest where a public entity's culture is receptive to these discussions, communication is regular, and where incidents are reported to the relevant authorities.

Fraud awareness, prevention, and detection in the public sector, 2012

People are less likely to try to get away with fraud if their co-workers know what to look for and will speak up if they suspect wrong-doing. This is where the “tone at the top” is particularly important – as New Zealanders, we tend to be trusting and our largely clean way of operating means that we aren’t used to fraud. Staff need to be reminded, often, that trusting other staff isn’t a fraud control.

It’s critical that senior managers get the balance right: trusting people to give their best at work while having strong checks and balances in place, and a culture where people feel safe to question and call out behaviour or practices that look a little odd or suspicious.

Take the risk of fraud seriously and respond decisively

We expect public sector organisations to be taking the risk of fraud seriously and have a plan for how to respond to suspected fraud:

The Auditor-General expects that every public entity should formally address the matter of fraud, and formulate an appropriate policy on how to minimise it and, if it occurs, how it will be dealt with.

Auditing standard about fraud: AG ISA (NZ) 240

We generally expect all suspected wrongdoing, including thefts and suspected fraud, to be referred to law enforcement agencies. In 2012, we found that only 39% of suspected fraud incidents had been reported to law enforcement agencies.

You don’t stop fraud by sweeping it under the carpet. Fraudsters need to be caught and stopped. If wrongdoing of any sort isn’t addressed – and not just by firing someone or letting them resign – then the poor behaviour can continue at another organisation in the public sector or elsewhere.

More about audits and fraud

If you want to know more, check out the standard about fraud that all auditors have to comply with and the data on suspected fraud that we get told about. There’s also useful information in the reports we published in 2011 and 2012 on fraud risks for different types of organisations.

If you want the essential stuff, it’s this:

• Trusting staff is not a control to prevent or detect fraud.
• Maintaining a culture of integrity can help to keep fraud at bay.
• A culture of integrity is most effective when supported by strong controls.
• Taking appropriate action where there is suspected fraud acts as a deterrent.
• Organisations need to refer instances of suspected fraud to the appropriate law enforcement agencies.

Given that it’s Fraud Awareness Week, we encourage all leaders in the public sector, no matter how large or small their organisation, to stop and think seriously about whether the key controls, the culture of their organisation, and the plan for responding to suspected fraud are all lined up to make it as difficult as possible for fraud to occur.

We see many examples of local authorities working with others in the sector, with central government, with the private sector, and with their communities. This is expressed in governance arrangements, shared services delivery models, strategic planning, and consistent approaches from regulation right down to project delivery.

The reasons for working together are many and various – for example, to improve the services delivered to communities, to foster economic development, to better align land use and infrastructure delivery, and to address freshwater quality challenges, just to name a few.

I recently attended the Water New Zealand Conference & Expo. One of my take-home messages from the conference was that the really difficult challenges facing the public sector – like how we improve the quality of our water resources – are primarily relationship challenges rather than technical ones.

Project delivery: Improving the resilience of Wellington’s drinking water supply

Wellington Water is responsible for making sure that the water supplied to Lower Hutt, Porirua, Upper Hutt, and Wellington is clean and safe to drink. The Wellington region is vulnerable to the risk of its drinking water supply being interrupted for a prolonged period after a major shock, such as a significant earthquake. The damage to the water network from such an event could leave parts of Wellington without water for up to 100 days.

Wellington Water’s long-term goal is to be able to provide 80% of its customers with at least 80% of their drinking water needs within 30 days of a reasonable size earthquake.

Wellington Water has been working with central government, infrastructure providers (for example, roading and electricity), and critical users, such as Wellington Hospital, to come up with a plan and the funding to improve the overall resilience of Wellington. The parties are working together to take an integrated approach, including how it engages with central government about its contribution to building regional resilience.

Central government recently announced a $6 million contribution to this resilience goal that will be used to encourage people to store 20 litres of water per person per day to last at least the first seven days after a major earthquake. To support this work, Wellington Water is drilling for additional bores and storing bladders in a number of locations in the Wellington region.

Shared services: A council-controlled organisation in the Waikato?

Local authorities are required to deliver services in the most efficient and cost-effective way. Hamilton City Council and Waipa District Council have recognised that this has become more difficult for the delivery of water, wastewater, and stormwater services to their communities for a number of reasons, including growth pressures and increasing environmental standards.

A shared services model for the delivery of water supply, wastewater, and stormwater services in the Waikato has been considered since 2012. The process has been a long one starting with a report commissioned by Waikato Local Authority Shared Services Limited on behalf of the Waikato Mayoral Forum. Drivers for the shared services model included achieving cost savings, building network resilience, better service delivery to communities, and building technical capability.

Hamilton City Council and Waipa District Council are jointly consulting with their communities on forming a Shared Waters Management Company in the lead-up to their 2018-28 long-term plans. The consultation document states that the main purpose of the company would be to deliver more cost-effective services, more expertise, and a stronger and more resilient waters network than Hamilton City and Waipa District Councils could deliver on their own.

At this stage Waikato District Council have decided not to pursue this option.

Co-governance: The Rotorua Lakes, Waikato River, and Te Waihora

In our 2016 report Principles for effectively co-governing natural resources, we looked at a selection of co-governance arrangements established to manage a natural resource, including the Rotorua Lakes, the Waikato River, and Te Waihora (Lake Ellesmere).

We identified some principles that are helpful in setting up and operating co-governance arrangements:

• build and maintain a shared understanding of what everyone is trying to achieve;
• build the structures, processes, and understanding about how people will work together;
• involve people who have the right experience and capacity;
• be accountable and transparent about performance, achievements, and challenges; and
• plan for financial sustainability and adapt as circumstances change.

Our water work programme

We’re looking at water management challenges through our water theme work programme that covers drinking water, freshwater, stormwater, and the marine environment.

We’ve just published a scene-setting report that explains why we have an interest in water management, sets out our view of the key water management challenges facing the public sector, and highlights the themes we’ll explore through our water work.

Effective relationships are crucial to addressing water management challenges. We’re going to look at how public sector organisations are working with each other, Māori, and their communities more generally in carrying out their water management responsibilities. We’re interested in how they set strategic priorities, make investment decisions, deliver programmes of work, their governance arrangements, and what regulatory and non-regulatory approaches they are using.

We look forward to engaging with many of you as we progress our water work. If you have any stories about collaboration you’d like to share with us, please post a comment below or contact the Local Government team at the Office.

I thought of this moment while listening to the speakers at the August Transparency International New Zealand Leaders Integrity Forum. Andrew and Jason of the New Zealand Intelligence Community (NZIC) and Families Commissioner Len Cook discussed how effectively managing personnel could reduce the risk of fraud and corruption. Attendees at the Forum were introduced to personnel security issues by the General Manager of the Aviation Security Service, Mark Wheeler, who reflected on his dad’s advice to ‘trust no bastard’. Times, he said, had changed since his police officer dad was on the beat in the 1950s. Now, for the Aviation Security Service, it’s about managing risk while balancing that with trust.

Our Office’s 2012 fraud survey showed that many in the public sector trust their colleagues and regard their integrity as a protection against fraud and corruption risks. However, it’s important to note that trust is not a fraud control. Andrew and Jason warned that the greatest damage is often done accidentally or unintentionally and by staff and suppliers. Once, the NZIC focused almost exclusively on personnel security to protect our national interests. Nowadays, the expertise of the NZIC is available so anyone can better manage their own organisation’s personnel security risks. The Protective Security Requirements website outlines the Government’s expectations for managing personnel, physical, and information security.

Andrew and Jason reinforced taking a risk-based approach (see the infographic below) that fits your organisational culture and context to:

• recruit the right people;
• set the right expectations;
• ensure their ongoing suitability through active management; and
• manage their departure.

It’s right for us to trust our colleagues, but we need systems and controls to protect each other, our stakeholders, our suppliers, and the public from risk. Andrew and Jason made it clear that, like the referee of my son’s football match, we need to blow the whistle quickly at the first sign of trouble. The longer that issues go without being raised and understood, the more damage they could do to everyone involved.

Len Cook then challenged us to think about our most important personnel. He described families and whānau as the undervalued but most essential partners in cultural, social, and economic progress. The public sector has a strong interest, he said, in the core business of families – that of production and reproduction. Drawing from the Social Policy Research Unit’s analysis, Len emphasised that families are the engine of public services such as health, education, and social services. But as the population ages, fewer and fewer resources will be devoted to families and to generating production.

He expressed concern that science, social policy, and public sector practices are poorly connected and that little is known about how families work. Doing so, he argued, is vital to achieving good results for all children and improving the circumstances of those most vulnerable – for example, grandparents are twice as likely to intervene in child protection situations as child protection agencies.

So we need to support families and to anticipate and understand the effect of changes in their circumstances on their ability to provide good care. In short, to think of them more like our trusted personnel.

Watch this video to hear some of our staff talk about what we did and what we found:

Transcript for this video.

We have published seven reports on the Canterbury earthquake recovery:

• Roles, responsibilities, and funding of public entities after the Canterbury earthquakes;
• Earthquake Commission: Managing the Canterbury Home Repair Programme;
• Effectiveness and efficiency of arrangements to repair pipes and roads in Christchurch;
• Earthquake Commission: Managing the Canterbury Home Repair Programme – follow-up audit;
• Governance and accountability for three Christchurch rebuild projects;
• Effectiveness and efficiency of arrangements to repair pipes and roads in Christchurch – follow-up audit; and
• Canterbury Earthquake Recovery Authority: Assessing its effectiveness and efficiency.

Every year we publish a report to communicate the local government annual audit results. We published our latest report in April 2017. Here are the key messages, focusing on engaging with your communities, setting rates, and the main financial trends.

Engaging with your communities – timely, relevant, and accessible information

Communities need timely, relevant, and accessible information so they can engage with you on the issues that matter. This information includes annual reports (including summary annual reports), annual plans, and long-term plans, and the approach you take to consultation.

Timely means, at the very least, meeting statutory deadlines. Although most of you meet these deadlines, we did see a decrease in the number who met the deadlines in 2015/16 for publicly releasing your annual reports and summary annual reports. Just a reminder to check that your systems and processes enable you to produce and publish these documents on time.

In 2014, there were changes to the LGA to make consultation on long-term plans and annual plans simpler - which hopefully means they are more relevant and accessible for communities. You now have to formally consult on your annual plan only if it involves a significant or material difference from your long-term plan, and consultation on long-term plans and annual plans (if required) is via a concise and focused consultation document.

We looked at how you responded to these changes.

Some of you still chose to consult even though you weren’t required to. Others didn’t formally consult but still chose to engage with your communities via seeking feedback, holding workshops, and other methods. The decision whether to consult is one for your elected members, who should consider the legal requirements, the significance of issues, and the nature of your community.

Precision required when setting and collecting rates

A 2016 High Court decision on Northland Regional Council’s rates collection arrangements with the territorial authorities in its region highlights the importance of getting it right when setting and collecting rates. The decision was an interim one, but found that:

• rating resolutions must specify the actual calendar dates for payment of a local authority’s rates;  and
• local authorities can’t delegate some powers to another local authority – assessment of rates, recovery of unpaid rates, and imposing penalties.

You should check your rates resolutions and rates collecting arrangements for lawfulness – this is not the auditor’s responsibility. The role of the auditor is to get reasonable assurance that rates revenue has been properly calculated and that there has been no major risk to collecting rates – this requires the auditor to consider whether the key legal requirements have been met but not to confirm lawfulness of all aspects of rate setting.

Financial trends

As with previous years, we’re still concerned that you may not be reinvesting enough in your assets. We’ve also noted a continuing trend of not spending as much as you planned on your assets.

There is a risk that the condition of assets is deteriorating and that future generations who will bear the costs may not be able to afford to pay. We’ve based our view on a low level of capital expenditure that the sector is reporting for renewals compared to depreciation expenditure.

You should each consider whether you’re investing enough to maintain your existing infrastructure.

This requires you to have a comprehensive understanding of your critical assets and the cost of adequately maintaining them, and to consider whether you’ve set appropriate depreciation rates that cover the asset over its useful life. We’ll examine this more in our 2018-28 LTP audits.

Elected members need this information to make deliberate decisions about how to manage their community’s assets so they can have meaningful conversations with their community about whether to reinvest in assets, and, if so, how to fund it.

Next blog

In our next blog, we plan on discussing collaboration activity in local government – what do some of the working arrangements look like?

It’s not immediately clear what June’s Transparency International Leaders Integrity Forum presenters could have in common; the paths of Peter Lennox, Chief Executive of MetService, and David Habershon, Chief Information Officer of the Ministry of Social Development (MSD), probably haven’t crossed before. MetService is a State-owned enterprise geared to generate revenue through weather forecasting, whereas MSD is a government department managing New Zealand’s largest social expenditure.

Despite these differences, Peter, who has a sciences background, and David, an English literature graduate, had a lot in common to say about integrity systems as the foundation of their services. Forum attendees heard a game of dictionary bingo with words like resilience, standards, safety, collaboration, and duty of care recurring in both presentations. Here’s why:

• Resilience: both had their service delivery tested by the Canterbury earthquakes and found ways to respond that have improved their preparedness for future events.
• Standards: both rely extensively on technology and information for collecting, analysing, and providing services and so apply international quality standards throughout their work.
• Safety: both serve people that rely on them to get it right and for whom getting it wrong can have dramatic consequences for their lives.
• Collaboration: both work with others to provide services in ways that help people get on with the business of their own lives.

There’s another thing Peter and David both saw – in the digital age, giving customers a good experience with their service and keeping their trust is what matters.

Given our recent history with extreme weather, we’re likely to agree we all benefit from the MetService’s cutting-edge technology, extensive access to meteorological forecasting models, international commercial operations, high-calibre professional forecasters, and collaboration arrangements to manage natural domestic events.

Peter described (like Janine Smith, Chair of AssureQuality, did last month) how MetService benefits both from New Zealand’s strong global reputation for integrity and from being a government-owned company. Peter explained how MetService (which is unusual for being commercial among its international peers) benefits from  its commercial activities help fund and develop New Zealand’s weather forecasting and natural hazard warnings system.

In our 2013 report Learning from public entities’ use of Social Media, we featured a case study on MetService, along with other entities. We identified eight success factors for the use of social media which seem equally relevant to using data and technology to improve service delivery.

It might seem odd that David Habershon had a similar view about the benefit of the private sector for developing MSD’s customer services. But MSD is an information and technology business that, under strict data-use controls, gets data from over a dozen agencies to prevent benefit fraud. David says using this data effectively could wipe out benefit overpayments, massively reduce tax under-payment, and save hundreds of millions of dollars in the short term.

The Data Futures Partnership, an independent ministerial advisory group established to develop New Zealand’s data-use in ways that promote value, inclusion, trust, and control, says that data-driven innovation has been estimated as contributing $2.4 billion to gross value added in New Zealand in 2014. Supported by Statistics NZ, the Data Futures Partnership is a cross-sector panel of influential people who provide a collective voice on data issues.

We recently published a report that made extensive use of district health board data to understand whether people with mental health problems were being discharged from hospitals with proper follow-up plans. We produced a short video that explains how we collected and analysed this data, including how we were able to map “patient journeys”. We have a number of forthcoming reports about how various agencies in the public sector have used data and information to help improve their services for New Zealanders.

Should the public sector use data about New Zealanders just because it can? David warned that this would be false economy, observing that in the digital age people don’t subscribe to services they don’t trust. If New Zealanders lost trust in the public sector, they will stop engaging – and the public sector would lose its ability to serve. To ensure that public institutions keep the faith of New Zealanders, integrity processes must be “baked in” to our organisations, their culture, and services. When it’s safe to share and good to share data, the public is more likely to support and trust the institutions that use it to deliver public services that are wanted and supported by New Zealanders.

Read our previous blog posts about the Transparency International Leaders Integrity Forum:

• Brand upon the brain
• Responding to the Panama Papers
• Back at number one and it’s personal
• The trust paradox

Image credit: Phillip Calder (Snow in Wellington, New Zealand, 15 August 2011) [CC BY 2.0], via Wikimedia Commons from Wikimedia Commons.

At the May Transparency International Leaders Integrity Forum, Janine Smith (Chair of AsureQuality’s Board of Directors) and Rebecca Smith (Director, New Zealand Story Group) spoke about why our integrity matters on the world stage, how a state-owned enterprise helps to protect it, and the importance of standing up for good. New Zealand’s reputation is a powerful international asset and, they told us, ours to lose.

Rebecca talked about the effect of soft power on exports, with one researcher suggesting that a 1% net increase in perceived positive influence can increase exports by about 0.8%. She outlined research showing that people are more likely to visit, recommend, and do business with a ‘country brand’. Yes, that’s right – in a world of logos, multi-national co-operations, and consumer brand consciousness, research shows that a country’s strong international brand can be linked to economic performance. In this age of social media, where we can choose how we get our news, values are in fashion, freedom is everyone’s dream, and being good is in short supply. New Zealand is one of only 22 countries in the entire world classified as a ‘country brand’ and little old us are ranked fifth in our contribution to the good of the world.

So why is our reputation so strong in the export market? Because the world believes that we take care to do things well and, when things do go wrong, we act transparently and quickly to put them right, a message similar to that shared by John Shewan in his presentation at the March forum.

It’s no wonder then that Janine and everyone at AsureQuality see their job as helping to reinforce New Zealand’s reputation for exporting safe and high-quality food, thus supporting and contributing to the success of our economy. AsureQuality provides specialist food assurance services in New Zealand and other locations with an end-to-end focus on the food supply chain. Janine says that it is only with the benefit of her wide governance and management experience (for example, as Chief Executive of Arnott’s New Zealand) that she realises that being effective as a company relies not just on AsureQuality’s own brand, but also on the strength of the NZ Inc brand.

How much does this brand matter? Unsurprisingly, a lot! Janine says that 80% of New Zealand’s products are exported. So extensive is our exporting activity that she recalls some of her earlier experience in other companies, describing it as New Zealanders going into the world to compete against each other, with the result that they drove each other to the bottom of the competition. Janine says New Zealand exporters now look more for what she described as ‘co-opetition’: competition at home but co-operation in overseas markets.

AsureQuality is itself a global brand that is known and trusted by both its New Zealand customers and international companies. It benefits both from New Zealand’s strong global reputation and from being a government-owned company. This means it can more easily operate in other countries, getting access to their regulators and others above other food quality assurance providers. An example of how AsureQuality contributed to protecting New Zealand’s reputation was its response to the infant milk formula tampering scare. AsureQuality was trusted by Chinese officials to develop and release a test for 1080 poison for use in China. This response gave confidence to consumers and international customers that New Zealand was acting with care and integrity in the face of a major threat.

So even though some people might not be able to locate us on a world map (that is, if we haven’t been erroneously forgotten), our global brand and reputation is known far and wide. There’s a lot that can be done to ensure that we maintain and build upon that reputation for many years to come to benefit all New Zealanders.

Read our previous blog posts about the Transparency International Leaders Integrity Forum:

• Responding to the Panama Papers
• Back at number one and it’s personal
• The trust paradox

John Shewan fits most people’s expectations of a tax accountant: reserved, brain the size of a planet, and a measured composure. John became something of a reluctant superhero when he was appointed by the New Zealand Government to carry out an independent inquiry to check whether the rules covering New Zealand-based overseas trusts are fit for purpose or need improving.

The inquiry was a response to the leaked Panama Papers in 2015. John, along with his equally modest and understated co-speaker Raj Krishnan, General Manager of the Department of Internal Affairs Regulatory Services, outlined the lessons from the inquiry and government agencies’ response to the Panama Papers at the Transparency International Leaders Integrity Forum in March.

Despite initial public and media concern about the terms of reference for the inquiry, it was clear to John from the outset that his inquiry needed to address no lesser risk than New Zealand’s international reputation. John saw the information being leaked to the media by those holding the full set of Panama Papers as having real potential to damage our international reputation and, as a result, our economy.

Speed was of the essence, and John’s inquiry was completed in less than three months. He challenges those of us who also carry out inquiries to draw lessons from the timeliness of his inquiry. One of the reasons speed was possible, he said, was the base of co-operative work practices, relationships, and information-sharing between the government agencies involved. Throughout our work at the Office of the Auditor-General, we also see better and timelier results when agencies collaborate and share information to achieve a common goal. We’ve raised this in some of our recent reports, including Education for Māori: Using information to improve Māori educational success and our reflections reports about Service delivery and Our future needs.

At the Forum, John conveyed bemusement about the storm of curiosity surrounding his inquiry in the media. Technocrat to the core, his initial instinct was to put his head down, do his work, and ignore the attention. Only when he realised that this storm had the potential to undermine confidence in his inquiry did John recognise that he also had a role to publicly communicate the facts about the inquiry’s purpose and scope.

John reflected on the critical importance of the terms of reference for any inquiry noting the tricky balance between making these broad enough to deal thoroughly with the issues at hand but not so broad that prompt reporting and remedial action is rendered impossible. He considered that the terms of reference for his inquiry were about right, with the 20 recommendations receiving support across Parliament and legislated within nine months of the reporting date.

Raj outlined the effort of the agencies involved with foreign trusts (the Treasury, the Ministry of Justice, Inland Revenue, the New Zealand Police, and the Department of Internal Affairs) in supporting the Government’s response to the Panama Papers. The second phase of this response, for which these agencies are now preparing, involves the extension of anti-money-laundering rules to advisors such as accountants and lawyers. John felt that the rules had been too open until now, and he told the Forum that he was pleased to see work progressing on this final aspect of his recommendations. So the inquiry’s speed has been matched by an equally speedy response by the agencies, which has ultimately helped prevent damage to New Zealand’s reputation and economy.

At the end of the Forum, someone speculated that John will be called on in the future for similar reviews. Like any superhero, it’s good to know that John and people like him are there. But even better is knowing that Raj and the staff of agencies involved in foreign trusts – from policy to enforcement – join up their work and information to help maintain New Zealand’s international reputation and our economy. Our standards of integrity and our way of life are the better for this quiet, effective work.

Read our previous blog posts about the Transparency International Leaders Integrity Forum:

• Back at number one and it’s personal
• The trust paradox

By now, all new mayors, chairpersons, and councillors will be settling into your roles – and a key part of your role is to enable a good debate with communities about the future through the long-term planning process.

So how do you prepare for, and have conversations with your communities about, what they are prepared to pay for the services they expect to receive? And what do we expect to see in your 2018-48 infrastructure strategies? The next round of infrastructure strategies and consultation documents is an opportunity to build on the first iteration of these documents, learning from good examples and picking up on the points highlighted in two of our reports:

• Consulting the community about local authorities' 10-year plans
• Matters arising from the 2015-25 local authority long-term plans

We also think that SOLGM’s updated long-term planning guides are a useful resource.

Focus on long-term financial sustainability

Many of our previous reports highlight that we’re concerned that local authorities might be underinvesting in assets and so won’t be well placed to deliver the services that communities across New Zealand expect in the future. We’ve based our concerns on a trend of low levels of reinvestment in local authorities’ infrastructure. It looks like that infrastructure might be unable to meet the service expectations of communities in the future.

Infrastructure strategies provide the opportunity to discuss how to respond to communities’ changing demands and needs over time and what this means for the services you deliver to them. We’ve observed that the better infrastructure strategies have a clear, visionary narrative – they told the reader where the council was, where it wanted to be, and how the council was going to get there.

Painting a compelling story of the future under different scenarios can help you and your communities to focus on what needs to be delivered now, and how you address likely service requirements in the future – what would happen if you delayed the upgrading of a particular asset? How do you respond to more floods in the face of climate change? What does an ageing population mean for the services your community receives?

The basis for having these conversations about the future are your financial and infrastructure strategies – they’re the building blocks for your long-term plan and should tell an integrated story. The Local Government Act 2002 recognises this integration by allowing a local authority to adopt a single financial and infrastructure strategy document as part of its long-term plan.

My colleague Hugh Jory met with the Canterbury councils’ finance managers in February 2017. Hugh heard about the work these councils are doing collaboratively to improve their financial strategies. We commend this work and expect many of you are also taking this approach. We’re happy to discuss any insights we have gathered from others that could help you to prepare your next financial and infrastructure strategies.

Have the right debate – effectively engaging with your community

If you’re going to make lasting and affordable decisions with your communities’ input, then you need to provide information about the significant issues facing your communities, what choices they have to address the issues, and their implications on rates, debt, and levels of service.

Consultation documents need to present this information clearly and concisely based on the financial and infrastructure strategies in a form and manner that provides an effective basis for consultation – they must be easy to understand by interested or affected people.

In the next consultation documents, we’d like to see a better description of the significant issues, options, and implications as determined from your significance and engagement policies and in considering other matters that are important to your community.

You need to make sure that people are able to access information supporting the consultation document, and we’d like to see shorter documents! All of this takes time – we expect you to factor in enough for your council to do justice to this important document and process.

For inspiration, have a look at Timaru District Council’s consultation document that won the SOLGM Great CD competition in 2015.

Next blog

In our next blog, we’ll provide an overview of our sector report Local government: Results of the 2015/16 audits. As always, leave a comment below or get in touch if you have any questions, concerns, or suggestions.

Here at the Office of the Auditor-General, we have had our own transition. Instead of a presidential election, our new Auditor-General was chosen by Parliament, and appointed by the Governor-General. At midnight on Tuesday 31 January, Lyn Provost’s term as Auditor-General ended. On 1 February 2017, Martin Matthews began his seven-year term as New Zealand’s new Controller and Auditor-General (CAG for short).

With a name like Charles Fitzgerald, I have a lot to live up to. The first Auditor-General was Charles Knight. He served from 1846 till 1878. The second Auditor-General was James Edward Fitzgerald, who served from 1878 to 1896. New Zealand had 17 men serve as Auditor-General, before Lyn Provost became the first woman to hold the position in 2009. Before the Public Audit Act 2001, terms varied. Under the Act, an Auditor-General now serves a single seven-year term.

Thanks to a wide enough range of ages, the three most recent Auditors-General were colleagues together. Kevin Brady, Lyn Provost, and Martin Matthews were on the same leadership team when Brian Tyler was the Auditor-General (1983-1992). As part of settling in and thanking Lyn for her service, Martin had them around to share a meal and some memories.

Much like any other transition of power and responsibility, the handover to Martin on Wednesday was seamless and efficient. In the months after Martin’s appointment was confirmed, he met with Lyn to discuss matters of the Office. A 90-day schedule began as soon as he started his first working day at 8am on 1 February. Unlike recent news events, the start of a new Auditor-General’s term in New Zealand was never likely to be met with protest or fanfare.

That suits the nature of the Office of the Auditor-General. The Auditor-General’s office is one of calm and dignified work. The role, as an Officer of Parliament, is wholly independent, where integrity and trust is paramount. The Auditor-General is independent of executive government and Parliament. Nobody can tell them what to do or how to do it – but they’re accountable to Parliament and, of course, the public, as the Office serves both.

For Martin, becoming the Auditor-General is a bit like “returning home” after 18 years away. He started his career in the Office and left in 1998 as an Assistant Auditor-General. Since then, he has been Chief Executive of the Ministry for Culture and Heritage, and Secretary for Transport.

Martin is currently travelling around New Zealand to meet his staff, from Dunedin to Auckland. After 36 years in the public sector, chances are Martin is familiar with all of the acronyms that we use – CRIs, CCTOs, CCOs, CEs – he’s the CAG, after all. He’ll know his AG-4 (Auditing standards for the audit of service performance reports) from his “Biscotti” (Briefing to the incoming select committee on transport themes and issues – it goes well with coffee, too).

Martin won’t just be publishing reports to Parliament and carrying out thousands of audits (financial auditing, performance auditing, and auditing long-term plans). He’ll be:

• carrying out inquiries;
• encouraging good governance and sharing audit committee resources;
• overseeing the Members' Interests Act;
• providing advice to government bodies and other agencies;
• supporting better service performance information; and
• continuing our international work.

With about 3,700 public entities to audit, Martin will be in the thick of it quite quickly. But he is surrounded by a passionate team of 367 people, including myself, throughout the country who firmly believe in the Office’s vision of improving the performance of, and the public’s trust in, the public sector.

In that respect, 1 February 2017 was business as usual.

New Zealand has worked hard to have a public sector with high integrity, which has been reflected in our ranking on Transparency International’s Corruption Perceptions Index for a long time. We are usually ranked either first or first equal in the world, but we slipped to second and fourth in 2014 and 2015.

It’s certainly good to be back at number one (at least, first-equal with Denmark) on the 2016 index. But we are not complacent.

In 2012, our Office’s work on fraud helped lead to an increase in awareness and action. Now all of us in the public sector have an opportunity to raise awareness and understanding of bribery and corruption.

Lyn told the Integrity Forum that the second word in “Corruption Perceptions Index” matters as much as the first. She has seen an increase in accusations of corruption during her term as Auditor-General, even though the Office’s inquiries have not upheld those accusations.

The increasing perception of corruption should be of concern to us all, Lyn said.

“Without transparency, allegations of corruption will flourish. Without transparency, people wonder what their politicians and officials are trying to hide. We can hardly blame them.”

As public sector auditors, we meet thousands of public servants committed to improving the lives of New Zealanders. They’re doing a great job, but our reputation is a fragile thing. There is plenty that can go wrong. Public entities can get too focused on avoiding risk, ticking boxes, following processes, and managing throughputs. Of course we need systems, but what comes first in maintaining integrity is concern about people.

Karin’s presentation on research in ethical leadership reinforced Lyn’s emphasis on concern for people. She told the forum that ethical leadership and explicit communication about ethics is particularly important for combatting unethical behaviour. Communication about ethical values and norms, and open discussion about ethical dilemmas, helps reduce perceptions of favouritism inside an organisation, and discrimination outside of it.

The Kiwis Count Survey run by the State Services Commission shows that New Zealanders' trust in public services by experience is consistently much higher than their perception of trust. By both measures, trust has increased markedly since 2007. It shows that their trust is closely linked to their personal contact with the public sector.

In her last address as Auditor-General to the public sector, those at the Forum might have expected a discussion of accounting and financial management challenges and of the systems that could be improved. But Lyn showed the forum the trait that has made her distinctive as an Auditor-General – her willingness to talk about the issues that matter for people.

She challenged the public sector to focus on, and find ways to improve, five issues that trouble us all and blight so many of our lives: and that undermine our integrity:

1. Suicide – the third leading cause of premature death in New Zealand. Every suicide is a tragedy. Our Office has tried to contribute to this complex problem by looking at how information is collected and used to prevent future suicides.
2. Mental health – in our Office, as in communities throughout New Zealand, no one’s life is untouched by the pain of suicide and mental health related issues. In the next few months, the new Auditor-General, Martin Matthews, will present a report on acute care of mental health patients.
3. Māori education – too many Māori children leave school without the education they deserve. The achievement gap between Māori and non-Māori is closing too slowly. As an Office, we are proud of our reports on Māori education, and we hope the sector will have the courage to do what is needed to help Māori students achieve their full potential.
4. Jobs for youth – we are an organisation that recruits graduates who are beginning careers to become our future public sector leaders and finance managers. Too often we hear the phrase “we want experienced people”! How does a young person get experience with that attitude?
5. Family violence and its impact on children – in her eight years in Police, Lyn says she saw the impact of family violence again and again. Family violence is not acceptable.

Staying at number one on the Corruption Perceptions Index means making it personal – having the uncomfortable conversations to find ways to tackle the issues that matter for people.

In August 2010, I went to the Garden City to attend a friend’s wedding. I stayed at the Camelot Hotel in Cathedral Square, and explored central Christchurch.

The following month, on 4 September 2010, a magnitude 7.1 earthquake struck Christchurch at 4.35am. On 22 February 2011, a more deadly magnitude 6.3 earthquake struck at 12.51pm.

After the earthquakes, I returned to Christchurch to audit the recovery effort in May 2012. It felt like I was visiting a different city. Everything I knew about Christchurch had changed.

For the last five years, I have been involved in observing and auditing how Christchurch is recovering from the earthquakes. I have met dedicated and passionate people from public entities, the private sector, and non-governmental organisations. I have also talked to frustrated and weary people in the community. I have seen repairs to earthquake-damaged homes and I have seen new pipes being laid by the Stronger Christchurch Infrastructure Rebuild Team.

One of my most sobering experiences came while working with colleagues from the Japanese Board of Audit, who were in Christchurch to learn about the recovery. As part of the trip, we stopped at the site where the CTV building used to be and we observed a minute’s silence for the victims. Of the 115 people who died when the building collapsed, 27 were Japanese.

After the earthquakes, the Auditor-General made it a priority to provide assurance to Parliament, and the public that public entities are carrying out the recovery effectively, efficiently, and appropriately. Alongside our annual audit work, the Office of the Auditor-General put together a Canterbury Work Programme. In the Canterbury recovery, public entities are responsible for repairing people’s damaged homes, repairing pipes and roads, and shaping Canterbury’s future.

So far, we have published six reports on the Canterbury recovery:

• Roles, responsibilities, and funding of public entities after the Canterbury earthquakes (October 2012);
• Earthquake Commission: Managing the Canterbury Home Repair Programme (October 2013);
• Effectiveness and efficiency of arrangements to repair pipes and roads in Christchurch (November 2013);
• Earthquake Commission: Managing the Canterbury Home Repair Programme – follow-up audit (November 2015);
• Governance and accountability for three Christchurch rebuild projects (December 2015); and
• Effectiveness and efficiency of arrangements to repair pipes and roads in Christchurch – follow-up audit (May 2016).

We have provided advice to Parliament on the recovery effort and briefed select committees on the findings of these reports and our annual audits, including on the Canterbury Earthquake Recovery Authority (CERA), the Earthquake Commission, and Southern Response.

Each of our reports has lessons to help public entities deliver an effective recovery for the people of Canterbury. Some valuable lessons include:

• Effective governance arrangements are essential to provide direction and oversight that will help projects deliver the right facilities, for the right cost, and at the right time.
• Clear accountability at the project level is also needed, so people know each project's intended outcomes and whether these are being achieved.
• When working collaboratively, organisations must have a clear and common understanding about what they are delivering and how they will fund it. They also need to know what each other is doing. Without this clarity, their work might not be mutually supportive, could lack direction, and could be wasteful due to duplication.
• Organisations need to manage people’s expectations, but to give them as much certainty as possible. This should be done through regular communication and consistent processes.
• Public entities must prepare for unlikely – yet potentially catastrophic – events. Such events can require public entities to administer large and complex initiatives that must be quickly set up.

Under our Annual plan for 2016/17, we are reviewing the effectiveness and efficiency of CERA, and expect to publish that report early this year.

From my desk here in Wellington, I can see 61 Molesworth Street being demolished as a result of the November 2016 Kaikoura earthquake. For me, this is a very real reminder of the importance of learning lessons from the Canterbury earthquakes and ensuring that we apply them to the next recovery.