Appendix 3: The International Peer Review

In 2007/08, the Auditor-General commissioned an independent peer review of the Office. The review was undertaken by an international panel led by Pat Barrett, Senior Fellow, Australian National University and formerly Auditor-General, Australian National Audit Office (1995-2005). It was completed on 15 April 2008. The Office’s last peer review was undertaken in 2001.

Terms of reference for the International Peer Review

The review will assess the efficiency and effectiveness of the Office, in particular how well the Office is achieving the outcomes it seeks.

The review will cover:

• the governance of the Office, including the respective roles of and relationship between the Office of the Auditor-General and Audit New Zealand;
• the conduct of financial audit engagements, including the audit of Long-Term Council Community Plans;
• the conduct of performance audits, inquiries, the Controller function, and other work performed by the Office of the Auditor-General, including the support of select committees;
• general management of the Office, including the organisation of resources, the allocation of audits, and setting and monitoring of audit fees;
• the operation of the Office’s quality control systems;
• the Office’s relationships with its primary stakeholders, in particular Parliament; and
• such other matters as the review team considers relevant.

The review will generally follow the approach developed for the Australasian Council of Auditors-General for Peer Reviews and Voluntary Developmental Quality Assurance Reviews.

Overview results of the International Peer Review

The Auditor-General’s Office (the Office) is a relatively small but highly regarded organisation both in New Zealand and internationally. The Office operates in the context of a developed, highly performing and sophisticated national economy and an innovative public service that has been used as a model by many countries. On the one hand, limited resource availability and product scope might inhibit performance compared with that of other similar Offices but, on the other, the foregoing factors tend to raise expectations of the Office. The Review Team was conscious of such a tension but concluded, in relation to a number of performance criteria, that the Office would rate highly both absolutely and relatively in any international comparison.

The Review Team was impressed by the robust legislative framework applying to the public sector and to the Office. The Public Audit Act 2001 was intended to strike an acceptable balance between:

• the independence of the Auditor-General, in particular the ability to act without direction or improper influence by the Executive or the Legislature;
• the need for a sound working relationship between the Auditor-General, Parliament and the Executive; and
• the need for the Auditor-General to be properly accountable to Parliament.

Importantly, establishing the Auditor-General as an Officer of Parliament was to ensure the Auditor-General’s independence. The Office accepted that the Controller and Auditor-General, as an Officer of Parliament and a Corporation Sole has the same level of accountability as comparable entities in the public sector. It is recognised that the Auditor-General’s role as an Officer of Parliament does create a tension between being accountable to Parliament while recognising that Parliament is best served by an Auditor-General free from any political interference. The same comment applies to the statutory position of Deputy Auditor-General. The effectiveness of the Office is enhanced by the seamless integration of governance at the top of the organisation, reflecting the complementary and co-operative relationship between the two current appointees.

While some concerns were expressed to the Review Team about the clarity of roles and relationships between the Auditor-General (and the Office) and Parliament, the legislative intent is quite clear. Differing perceptions about action taken, or not taken, are best addressed by direct and open communication. Independence is called into question when one is involved in processes or related decision-making and is also responsible for the review or audit of the activity. It was clear that the Auditor-General and the Office are very sensitive to issues of independence and accountability and the appropriate action, including independent review, to provide assurance to the various stakeholders, not least to Parliament itself.

The Office has undergone significant and wide-ranging change since the last Peer Review in 2001. Its workload has increased in both volume and complexity. Its legislative and operating environment has altered in a number of ways. Its budget and staffing establishment have expanded. And significant improvements have been made to its structures, systems and operations.

The relationships of the Office with its key stakeholders are generally very positive. Its work is respected across government. Central agencies in particular see it as supportive of their efforts to improve public sector performance. It is highly regarded by local government. Parliamentary Select Committees depend heavily on advice from the OAG and appointed auditors in their examination of departmental estimates and annual reports. Ministers find it helpful to receive annual financial audit reports on their portfolio agencies and spoke well of the work of the Office. Parliament also values the Office’s work, although the recent inquiry into electoral advertising has obviously strained the Auditor-General’s relations with political parties. Recent independent stakeholder surveys bear out the high levels of satisfaction encountered by our team.

We found considerable process rigour around quality assurance, with no fewer than five reviews conducted in the year preceding our own review. These reviews have all commented positively on the OAG’s performance audits, while also usefully signposting ways in which further improvement can be made. We note that, 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 there would be merit in applying more of this resource to earlier points in the audit lifecycle.

With 14 performance audits to deliver in 2007-08 and a core audit staff of 15 performance auditors, there is a question as to whether present core staffing levels for performance audits provide sufficient continuity and capacity to do justice to the range and number of audits tackled each year. The selection processes for performance audits could also be refined, primarily around a more proactive engagement with Members of Parliament and public entities. While improving quality of audits and recommendations is of prime importance to the reputation and credibility of the Office, there is also the imperative to ensure that recommendations are actually being implemented effectively. A closer working relationship with Select Committees could assist in this respect.

Our overall assessment is that the Office has coped well with the challenges of recent years and is performing its tasks professionally and well. It has the feel of an outward-looking and forward-looking organisation. The feedback from stakeholders on its performance was generally positive, as noted earlier, with some suggesting that the Office could do even more to contribute to improving public sector management in New Zealand. We found management and staff alike to be well attuned to the changing requirements and expectations placed on the Office. Both the OAG and Audit New Zealand now seem to us to be well positioned to respond to the further challenges that lie ahead.

As with other Audit Offices and private sector accounting firms, the OAG and Audit New Zealand have an ongoing problem of attracting and retaining suitable professionals, not only to undertake audit programmes, but also to maintain – and hopefully improve – research and development capacity, add value to audits, and improve relationships with all stakeholders. At least three related factors need to continue to be addressed to meet staffing concerns – providing suitable personal development and professional training as well as state-of-the-art audit tools; providing a comprehensive and varied audit programme that is relevant to stakeholders as well as being demanding and interesting to staff; and promoting stakeholder relationships that enhance understanding and acceptance of the work of the auditor.